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Energy impacts in North Carolina : the annual report of the Energy Policy Council and the State Energy Office

Energy impacts in North Carolina : the annual report of the Energy Policy Council and the State Energy Office

North Carolina Energy Outlook 2003
Final Report
Prepared for:
State Energy Office
North Carolina Department of Administration
Prepared by:
Global Insight ( USA), Inc.
24 Hartwell Avenue
Lexington, MA 02421- 3158
May 2003
Global Insight, Inc., 2003
CONTRIBUTORS
Robert Cuomo, PhD Margaret Rhodes
Principal, Energy Consulting Senior Economist, Energy Consulting
( 781) 860- 6739 ( 781) 860- 6650
Fax: ( 781) 860- 6807 Fax: ( 781) 860- 6332
Mary Novak Hongyan Lin
Managing Director, Energy Consulting Economist, Energy Service
( 781) 860- 6057 ( 781) 860- 6454
Fax: ( 781) 860- 6332 Fax: ( 781) 860- 6332
Global Insight, Inc., 2003
TABLE OF CONTENTS
EXECUTIVE SUMMARY.................................................................................................... 1
THE OUTLOOK FOR ENERGY CONSUMPTION IN NORTH CAROLINA .................................... 1
RECOMMENDED POLICY ACTIONS........................................................................................ 4
CHAPTER 1: INTRODUCTION......................................................................................... 7
CHAPTER 2: ECONOMIC OUTLOOK FOR NORTH CAROLINA......................... 9
OVERVIEW....................................................................................................................... ..... 9
OUTLOOK FOR KEY NORTH CAROLINA INDUSTRIES.......................................................... 10
Finance and Insurance .................................................................................................. 10
High Tech........................................................................................................................ 11
Manufacturing................................................................................................................ 12
CHAPTER 3: THE OUTLOOK FOR NORTH CAROLINA’S FUEL AND
ELECTRICITY PRICES..................................................................................................... 15
OVERVIEW....................................................................................................................... ... 15
OUTLOOK FOR CRUDE OIL .................................................................................................. 16
North Carolina’s Petroleum Product Prices ................................................................ 17
NATURAL GAS ..................................................................................................................... 19
North Carolina’s Natural Gas Prices ........................................................................... 21
COAL ............................................................................................................................... .... 22
Coal Prices in North Carolina....................................................................................... 25
ELECTRICITY PRICE ............................................................................................................. 25
North Carolina’s Electricity Price Outlook.................................................................. 26
CHAPTER 4: ENERGY CONSUMPTION IN NORTH CAROLINA....................... 29
RESIDENTIAL.................................................................................................................... ... 29
COMMERCIAL..................................................................................................................... . 30
INDUSTRY EXCLUDING AGRICULTURE ............................................................................... 32
AGRICULTURE.................................................................................................................... . 33
TRANSPORTATION................................................................................................................ 33
POWER GENERATION........................................................................................................... 34
EMISSIONS...................................................................................................................... ..... 35
CHAPTER 5: COMPARISON OF NORTH CAROLINA ENERGY PRICE,
CONSUMPTION, EXPENDITURES................................................................................ 37
RESIDENTIAL SECTOR.......................................................................................................... 37
COMMERCIAL SECTOR......................................................................................................... 37
INDUSTRIAL SECTOR............................................................................................................ 38
TRANSPORTATION SECTOR.................................................................................................. 39
ELECTRIC POWER SECTOR .................................................................................................. 39
Global Insight, Inc., 2003
CHAPTER 6: STATE ENERGY PLAN AND THE POTENTIAL FOR
ALTERNATIVE ENERGY RESOURCES AND CONSERVATION TO LIMIT
EXPENDITURES ON ENERGY ....................................................................................... 41
ENERGY PLAN OBJECTIVES................................................................................................. 41
GLOBAL INSIGHT’S ANALYSIS AND RECOMMENDATIONS.................................................. 41
Ensure Energy Reliability for Citizens of North Carolina ........................................... 42
Improve Environmental Quality and Public Health in North Carolina...................... 42
Develop Policies that Promote Wise Land Use............................................................ 42
Implement Strategies Supportive of a Sound North Carolina Economy..................... 42
Develop an Achievable Energy Strategy for North Carolina ...................................... 42
Implement a Strategy by which the State Can Lead by Example ................................ 42
Public Sector................................................................................................................... 43
Residential Sector........................................................................................................... 44
ENERGY STAR Products....................................................................................................... 46
ENERGY STAR Homes.......................................................................................................... 46
ENERGY STAR Buildings...................................................................................................... 47
Commercial Sector......................................................................................................... 48
Industrial Sector ............................................................................................................. 50
Transportation Sector .................................................................................................... 59
Renewable Energy Sources............................................................................................ 62
Net Metering................................................................................................................... 64
Green Power Pricing ..................................................................................................... 64
Renewable Portfolio Standard....................................................................................... 65
Education and Research ................................................................................................ 66
Other Research Efforts.............................................................................................................. 68
Demand Side Management............................................................................................ 69
Restructuring .................................................................................................................. 71
Restructuring in North Carolina............................................................................................... 72
Regional Transmission Organizations..................................................................................... 73
Public Benefits Funds .................................................................................................... 75
Power Aggregation ........................................................................................................ 87
BIBLIOGRAPHY AND DATA SOURCES ..................................................................... 89
DATA SOURCES.................................................................................................................... 89
APPENDIX: FORECAST TABLES................................................................................. 91
Global Insight, Inc., 2003, Page 1
EXECUTIVE SUMMARY
North Carolina’s economy is projected to grow rapidly over the next twenty years.
Today, North Carolinians enjoy a level of prosperity that exceeds much of the rest
of the nation. North Carolina’s economic performance is one of the reasons why
the state is attracting new residents. Another factor that has helped North
Carolina attract new industry, new residents, and vacationers is its natural beauty.
From its world renowned beaches to the Smoky Mountains, North Carolina offers
a harmonious environment.
The Economic Outlook for North Carolina
( Average Annual Growth Rates)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990- 2002 2002- 2010 2010- 2020
GSP / capita Population Real Income / capita
To ensure the continued success of North Carolina, policymakers and
stakeholders have worked together to frame an Energy Plan for the state. North
Carolina does not possess any fossil fuel resources, leaving it vulnerable to energy
price spikes. The state is also experiencing deteriorating air quality in its major
metropolitan areas and the mountainous western region due to vehicle emissions
and the burning of fossil fuels by power plants. The State Energy Plan outlines
programs and policies that would increase the efficient use of energy, improve the
state’s air quality, and help reduce its expenditures on energy.
The Outlook for Energy Consumption in
North Carolina
North Carolina has had only modest growth in its energy consumption on a per
person basis and a real decline in its use per dollar of output ( as measured by its
Gross State Product or GSP). These trends are now well established and should
be repeatable over the next twenty years if program and policies are maintained.
However, to increase the state’s reliance on renewables and substantially increase
its energy efficiency will require new policies, programs, and funding.
North Carolina’s economic
prosperity and natural
beauty are attracting new
residents.
The continued success of
the state depends on
( 1) increasing the efficient
use of energy,
( 2) improving the state’s air
quality,
( 3) limiting its expenditures
on energy.
Global Insight, Inc., 2003, Page 2
Total Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Energy Total Energy / capita Total Energy / GSP
Residential Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Res. Energy Total Res. Energy / capita
Commercial Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Com. Energy Total Com. Energy / employee
Total energy consumption in
North Carolina per capita is
projected to grow modestly
while real energy prices are
rising.
Growing population and
expanding economic output
( GSP) are the drivers of the
projected growth.
North Carolina residential
energy consumption per
capita is projected to grow
0.6% per year, slightly
slower than the national
average of 0.7%.
North Carolina commercial
energy consumption per
employee is projected to rise
very slowly as these
establishments have a
strong economic incentive to
control their energy
expenditures.
Global Insight, Inc., 2003, Page 3
Industrial Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Ind. Energy Total Ind. Energy / GSP
Transportation Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1990 1994 1998 2002 2006 2010 2014 2018
Total Trans. Energy Total / capita Total Trans. Energy / GSP
Total Energy Consumption by Fuel ( million Btu per year)
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
1990 1994 1998 2002 2006 2010 2014 2018
Coal Oil Gas Other
North Carolina industrial
energy use per dollar of
output will continue to
decline sharply, as new
investment in less energy-intensive
industries
continues.
North Carolina transportation
energy use is projected to
increase reflecting North
Carolina’s growth in
intrastate traffic, interstate
traffic, and air traffic.
North Carolina is increasing
its reliance on natural gas
and renewables. However,
to make more significant
strides in renewable energy
consumption will require new
programs, policies, and
funding.
Global Insight, Inc., 2003, Page 4
Recommended Policy Actions
The following are Global Insight’s specific recommendations with regard to the
State Energy Plan:
Sector Recommended Actions
Residential/ Commercial • Enforcing more rigid and expanding energy code compliance will be very effective
in reducing both residential and commercial sector energy consumption.
• Promoting energy audits through tax credits and direct incentive payments will have
a significant impact on residential energy consumption.
• The state of North Carolina should participate as much as possible in the ENERGY
STAR Products, Homes, and Buildings Programs.
• Based upon experience with energy code compliance, energy audit, and Energy
Star programs in Massachusetts, energy consumption per person in the residential
sector could be reduced from a growth rate of 0.6% per year to 0.3% to 0.5% per
year if all recommended measures were fully funded.
• Based upon experience with aggressive building design and performance
contracting for public buildings in Massachusetts, commercial energy consumption
could be reduced from a growth rate of 1.6% per year to the 1.1% to 1.3% per year
range if all recommended measures were fully funded.
Commercial/ Industrial • In the commercial and industrial sectors, space cooling and water heating initiatives
should be promoted through performance contracting.
• Subsidies should be provided to commercial and industrial building owners to
conduct energy audits.
• The state of North Carolina should develop energy analysis software for commercial
and industrial building owners.
• Provide incentives such as tax credits or direct payments for the installation of
energy efficient measures in new or existing commercial and industrial buildings.
• With respect to lighting in commercial and industrial buildings, enforcement and
expansion of energy code compliance standards should be aggressively pursued.
• With regard to process heat and boiler fuel operation, industrial building owners
need to be motivated to install energy efficient equipment. This can be
accomplished by offering rebates and direct subsidies.
• Based upon experience with these programs in Massachusetts, industrial energy
consumption could be reduced from 0.6% to the 0.2% to the 0.4% per year range if
the above- mentioned initiatives are fully funded. This was the experience in
Massachusetts in the late 1990s.
Agriculture • Direct cash subsidies should be offered for the use of agricultural crops as an energy
source for renewable energy to make a meaningful contribution to energy supply.
• Because agriculture is a very important part of the North Carolina economy, it
represents a significant source of renewable energy and should be aggressively
cultivated as an energy source.
Global Insight, Inc., 2003, Page 5
Public • Improving public building design standards and initiating performance contracting
for public building energy efficiency programs designed to reduce heating and
cooling consumption will be very cost- effective energy efficiency expenditures.
• North Carolina should require a minimum of 10% of the energy used in the public
sector be purchased from renewable sources by 2010.
• Implementation of the above initiatives will allow North Carolina’s public sector to
play a key role in allowing the state to achieve greater energy independence.
Power • By 2010, 10% of electricity consumption in North Carolina should be generated by
green power. This should be accomplished by introducing an attractive green
pricing policy.
• Tax credits and direct subsidies should be offered for the development and
implementation of fuel cell projects.
• Photovoltaics as a renewable energy source should be promoted with generous tax
credits at the state level on the order of 35% should continue to be offered.
• To promote the expansion of wind power as a renewable energy source, the
restrictions imposed by the Mountain Ridge Protection Act of 1983 should be
loosened and tax credits at the state level on the order of 35% should continue to be
offered.
• Hydroelectric projects should be supported and encouraged through appropriate
financial incentives.
• North Carolina needs to develop a program or set of programs to replace the DSM
programs that have been eliminated by the IOUs. Public benefit funds and
renewable portfolio standards are examples of what other states have adopted in the
face of declining effort in DSM programs.
• A net metering standard with a maximum limit of 1% of total electricity demand
should be established.
• Power aggregation should be encouraged and facilitated by state programs which
keep all electricity customers fully informed as to potential power aggregation
opportunities.
• The impact of the above initiatives will be to increase the supply of energy in North
Carolina in an environmentally friendly manner, to reduce energy consumption,
and to promote reasonable prices.
Transportation • Developing financial incentives for highly efficient vehicles and targets for
alternative fueled vehicles should be vigorously pursued. Tax credits and direct
subsidies should be granted for the purchase of alternative fueled vehicles.
• Granting tax credits to businesses that achieve a certain level of telecommuting and
offering direct subsidies to commuters who use mass transit are promising policy
initiatives that should be implemented.
• Increasing the gasoline tax in North Carolina and promoting Smart Growth
communities will reduce the number of vehicle miles driven and reduce
transportation sector energy consumption.
• Under business as usual conditions, vehicle miles traveled are expected to increase
on average by 2.2% per year between 2000 and 2020, vehicle efficiency ( miles per
gallon) by 2.3% per year, and on- road per- person use by 0.9%. Based upon
experience with these initiatives in Massachusetts, it is Global Insight’s assessment
that if the above initiatives are funded, then the growth in vehicle miles traveled can
be reduced by 0.2% to 0.4% per year, vehicle efficiency can be improved by 0.3%
to 0.6% per year, and on- road per- person use by 0.1% to 0.3% per year
Global Insight, Inc., 2003, Page 6
Overall • A public benefits fund should be created in North Carolina through the imposition
of a non- bypassable charge on electricity entering the transmission grid.
• North Carolina should develop a Renewable Energy Standard for each sector.
• A lighting rebate program needs to be an essential part of the Energy Plan. The
rebates should be offered for both energy efficient fixtures and bulbs.
• Energy topics should be directly incorporated into the school curriculum. This is a
very cost effective way of educating the general public concerning energy awareness
and providing vocational training on new energy saving technologies and renewable
energy sources.
• For the State Energy Plan to be truly effective, it must be dynamic. This will require
continuous research, which is best achieved by the funding of specific research
programs.
• Penetration rate studies and consumer surveys should be conducted in North
Carolina to evaluate the potential effectiveness of many of its programs. The careful
monitoring of the energy savings achieved by each program is essential if the
Energy Plan is to be improved over time.
Global Insight, Inc., 2003, Page 7
CHAPTER 1: INTRODUCTION
The State Energy Office is North Carolina’s lead agency for energy programs and
serves as the official source for energy information and technical assistance for
consumers, businesses, government agencies, and policy makers. It is responsible
for administering the State Energy Program of the U. S. Department of Energy.
The State Energy Office administers programs in four primary areas:
• Energy efficiency and renewable energy for the residential, commercial,
industrial, agricultural, transportation, and power generator sectors.
• Alternative fuels and alternative fuel vehicles.
• Energy policy recommendations to the North Carolina Energy Policy Council,
North Carolina General Assembly, the Governor’s Office, and other state
agencies.
• Energy emergencies during natural disasters and supply disruptions.
Since the state does not possess any fossil fuel resources, it is vulnerable to
potential supply disruptions and energy price spikes. In addition, the state is
experiencing deteriorating air quality in its major metropolitan areas and the
mountainous western region largely due to vehicle emissions and the burning of
fossil fuels by power plants.
To address these issues, the State Energy Office has focused upon the
development of indigenous renewable energy resources ( biomass, hydro, wind,
landfill gas, and solar) and energy efficiency programs. At the present time, the
state obtains about 3% of its energy requirements from renewable resources, with
the potential to get a much larger share if these resources are aggressively
developed.
Specifically, the State Energy Office proposes the following initiatives:
• Actions to ensure that up- to- date and well- tested energy response plans are in
place in the event of supply disruptions or curtailment.
• Strong support for the development of alternative fueled vehicles to reduce
vehicle emissions and reduce reliance on overseas petroleum.
• Integration of environmental concerns with energy supply development to
ensure the improvement of air and water quality.
• Increased federal funding for low income households to weatherize their
homes.
• Increased funding of energy efficiency programs, including both
implementation programs and research and development efforts.
• Increased funding of renewable energy programs.
Global Insight, Inc., 2003, Page 8
This report provides a comprehensive assessment for the state of North Carolina
of the opportunities and constraints for all types and uses of energy by economic
sector. It provides a detailed outlook for energy, assuming a continuation of
current trends, and an assessment of the potential opportunity to improve North
Carolina’s energy outlook.
Specifically, the report addresses the following topics:
• The economic and demographic outlook for North Carolina.
• The outlook for energy availability and its impact on North Carolina energy
prices.
• The outlook for North Carolina energy consumption and expenditures.
• A comparison of North Carolina’s energy prices, consumption, and
expenditures to the South Atlantic and the U. S.
• The potential for alternative energy resources, conservation, and policies to
increase energy efficiency, improve air quality, and reduce North Carolinians
expenditures on energy.
Global Insight, Inc., 2003, Page 9
CHAPTER 2: ECONOMIC OUTLOOK FOR NORTH CAROLINA
Overview
The U. S. economic recovery is plodding along and will gather steam slowly over
2003, after growing 2.3% in 2002 – little better than half the rates achieved in the
late 1990s. Although war jitters may be having some dampening effect, the real
economy is in better shape than the behavior of financial markets indicates.
Further recovery is expected to bring real GDP growth to around 3% for 2003 as a
whole; for the full period to 2020, it is expected to average 3.2%.
North Carolina’s economy was unable to find a positive direction in 2002. Total
non- farm employment contracted 0.2% with non- manufacturing increasing 0.7%
and manufacturing declining 4.1%. The state’s textile, apparel, and furniture
manufacturing firms continued to reel due to tough trading conditions and fierce
foreign competition. In addition, layoffs in the banking sector, sparked by
mergers and rising loan write- offs, have left payrolls in the finance, insurance, and
real estate ( FIRE) sector flat through the middle of the year. The transportation,
communication, and utilities ( TCPU) and construction sectors also posted
employment declines. Weak economic conditions saw the state’s unemployment
rate ratchet up to 6.4%, compared with a rate that was below 6.0% in 2001.
North Carolina’s economy is projected to slowly recover over 2003. Total non-farm
employment, which contracted in 2002, should grow by 1.4% in 2003 as the
national recovery firmly sets in and business and consumer spending quickens.
The beleaguered manufacturing sector is the primary reason for the state
economy’s current malaise, and ongoing weakness in national and global markets,
combined with strong foreign competition, means that the sector will continue to
shed jobs. Consequently, manufacturing employment is expected to decline a
further 1.2% in 2003. In addition, employment in the FIRE sector, which fell
0.2% in 2002 as banks and financial institutions continue to shed jobs in a bid to
trim costs following a series of recent mergers and a growing number of bad
loans, should improve. North Carolina’s strong position as a regional financial
cluster will be the impetus behind renewed growth, with payrolls growing by
3.0% in 2003.
During the next couple of years, non- manufacturing will continue to be the main
engine of employment growth. Employment in this sector increased in 2002 and,
as economic activity picks up in 2003, payroll growth will ratchet up to levels
more reminiscent of the late 1990s, at around 3.5%.
Over the next five years, North Carolina’s economy will post moderate but steady
growth. Total non- farm employment is expected to increase by 1.3% annually,
with continued job losses in the manufacturing sector being counterbalanced by
Global Insight, Inc., 2003, Page 10
brisk employment growth in the services and FIRE sectors. After peaking at
slightly more than 6.5%, the state’s unemployment rate will drift back down to
around 5.3% by 2007.
Contributing to the expectations for economic growth is a new state business
incentive program that was passed by the General Assembly in 2001. The
controversial legislation gives selected companies rebates on the NC tax
withholdings for their employees. Modeled after similar programs offered in
South Carolina and other states, the program establishes a committee of five state
officials with the power to authorize rebates of as much as 75% of the state
withholdings on jobs created by new or expanding companies. The incentives
would be limited to 15 companies per year, with the state making inducement
payments to each business for up to 12 years. The total cost of the program is
capped at $ 240 million over the next 13 years.
Although the legislation has been criticized as corporate welfare by a range of
lobbying groups, Charlotte business leaders believe it will bring job growth to
their metro area. Indeed, Charlotte Chamber of Commerce officials say the state
has, for too long, seen potential new businesses walk away when other states
offered lucrative tax breaks, free land, or other enticements. They expect that the
new incentives will give Charlotte and other North Carolina cities a tangible way
of sending the message that the state wants new business.
Outlook for Key North Carolina Industries
Finance and Insurance
Over the past decade, North Carolina has emerged as one of the nation’s banking
powers. Thanks to a steady stream of mergers and acquisitions, the state now
boasts two of the four largest banks in the country–– Bank of America and
Wachovia Corporation, which are both headquartered in Charlotte. The merger
of First Union Corp. and Wachovia was official on September 1, 2001, and
created the fourth largest financial institution in the country, with 19 million
customers and $ 324 billion in assets. Along with this type of merger come the
inevitable branch closings and job reductions. Wachovia Securities announced in
December 2001 that it would cut 400 jobs in Charlotte, as it combined the
brokerage arms of the newly formed corporation. In January 2002, it was
announced that nearly 160 jobs were being cut as Wachovia’s wealth
management business moved its technical operations to Charlotte from Winston-
Salem. When the application to merge the bank charters was filed with federal
regulators, Wachovia stated that it would be closing 65 branches, 11 in North
Carolina, in the second quarter of 2003.
The recent downturn in the national economy has left some North Carolina banks
with credit quality issues needing to be addressed. In a state that is highly
dependent on manufacturing, a sector that has suffered significantly in the recent
recession, the economy will be more vulnerable even as the national recovery
Global Insight, Inc., 2003, Page 11
begins. Bank of America and other major North Carolina banks are reducing their
exposure in the textile and apparel industry, limiting it to only the strongest
performers in the industry. One factor that bodes well for North Carolina’s big
three banks, Bank of America, Wachovia, and BB& T Corp., is that they are in a
number of markets, and this geographic diversity makes the ability to weather a
downturn much better.
High Tech
The growing economic problems facing the nation's telecommunications industry
are having a direct impact on North Carolina’s high- tech industry. The issue is
particularly acute because almost 60% of the nation’s fiber- optic cables are made
in the Charlotte region, and the over- capacity built up in the late 1990s is resulting
in much lower demand for telecommunications- derived products.
Most recently, Globespan Virata, a California- based semiconductor manufacturer,
closed its operations in Raleigh, citing the struggling telecommunications
industry. North Carolina has also seen telecommunication firms, such as Hatteras
Networks and Redback Networks, reduce their presence in the state due to the
same reason. In addition, Celestica and Solectron, manufacturing spin- offs of
Cisco Systems, made significant job cuts at the end of last year, with Solectron
closing down its operation all together. Furthermore, one of the cornerstones of
the state’s high- tech industry, Cisco Systems, has put plans to expand into six new
buildings on hold. Nortel Networks, which employs 4,500 in the Raleigh area
( about 10% of the company's total workforce), announced another round of job
cuts for the end of 2002. In a sign of the problems facing the industry, office
vacancy rates in Research Triangle Park increased to 15.6% in the first quarter of
2002, up from a rate of 5.4% in the same period a year earlier.
On the positive side, the state’s biotech sector is showing signs of growth.
Diosynth, a Netherlands- based pharmaceutical company, is planning to increase
its presence in North Carolina. Already employing 600 workers at its Research
Triangle Park location, Diosynth has agreed to build a new 300,000- square- foot
manufacturing facility that will eventually lead to the addition of numerous new
jobs.
With major firms, such as Cisco Systems, in the Research Triangle Park, North
Carolina will maintain its position as a center of high- tech commerce in the years
to come. This position was recently highlighted when Hatteras Networks closed
on $ 45 million in new venture capital funding for its research on speeding up
telecommunications networks. Nevertheless, the recent news from Nortel
Networks, which has already cut 50,000 jobs in the past two years yet continues
to struggle, points to the fact that the next few years will not see a return to the
rapid employment growth that happened at the end of the last decade.
Global Insight, Inc., 2003, Page 12
Manufacturing
After a brief respite in the mid- 1990s, when North Carolina’s manufacturing firms
enjoyed a few years of growth following the 1990– 1991 recession, the state’s
manufacturing sector has again resumed its downward trend. In 1995, around
864,000 workers were employed in the manufacturing sector, representing 25% of
the state’s total non- farm employment. In the next few years, manufacturing
employment declined by an average of almost 2% per year, as growing foreign
competition and a strong dollar led to an increasing pace of job losses. As global
economic conditions worsened, manufacturing employment has plummeted, and
today it represents less than 20% of total employment.
To a large extent, the sharp decline in manufacturing during this period has been
due to a unique combination of factors in the structural make- up of the sector.
North Carolina’s manufacturing sector has a heavy reliance on the textiles
industry— which accounts for 17% of total manufacturing employment— along
with apparel, furniture, and tobacco industries. These industries, which require
access to relatively low cost, unskilled, labor, are particularly exposed to
competition from firms in locations around the globe that have a large supply of
cheap labor and do not face the same type of environmental and workers rights
laws as in the United States. In the mid- 1990s, the importance of low- cost labor
to these industries was brought home with the advent of NAFTA.
The signing of the NAFTA trade agreement opened the door for direct
competition from Mexico, where labor costs, both direct and indirect, are
considerably lower than in North Carolina. This had a direct effect on the state’s
manufacturing sector, particularly the textile and apparel industries, with
manufacturers quickly drifting south of the border on account of these cost
advantages. The change in employment in the five years following 1995
dramatically emphasizes this, with employment in the textile industry falling at an
annual rate of 6% and employment in the apparel industry collapsing by more
than 10% per year. The growing problems in the state’s textile sector have led to
three of the largest textile firms in Greensboro— Guilford Mills, Burlington
Industries, and Galey & Lord— petitioning for chapter 11 bankruptcy protection.
While all three firms are expected to be able to reorganize successfully, they will
emerge much smaller and with increased emphasis on automation, which will
mean even lower demand for labor.
The state’s timber and furniture companies have also felt the affects of growing
global competition. In particular, increasing competition from China is forcing
many Tar Heel furniture makers out of business, which is having an affect on the
state’s timber industry. North Carolina’s furniture makers are now facing
competition from Chinese manufacturers, who as recently as five years ago were
unable to match the quality of U. S.- made furniture. But the Chinese
manufacturers have bought and mastered the use of Italian and German lathing
machines and are producing top- quality furniture. On top of this, manufacturers
Global Insight, Inc., 2003, Page 13
in China have the added competitive advantage of much lower labor costs.
Furthermore, the recent advent of China entering the World Trade Organization
means that the competition for the North Carolina’s furniture makers will not
soon abate. As a result, the state’s timber industry will have to look farther afield
for new opportunities.
During the past decade, the tobacco industry has also been dealing with a number
of issues that have impacted its growth prospects. Indeed, the restrictions on
advertising, the anti- smoking campaigns by health authorities, and the
compensation paid by the industry to state governments have put a heavy burden
on the industry. The increasing cost pressure placed on tobacco companies has
resulted in employment in this sector falling by an average of 3.9% annually from
1995 through 2001.
The downturn in North Carolina’s manufacturing base has been hardest on rural
areas. In many places, the local economy is still highly dependent on a single
large employer, and thus highly vulnerable when business conditions turn sour.
This was recently demonstrated in Holly Ridge ( Onslow County), which lost 500
jobs when Tyson Foods shut down its bacon production facility in June in an
effort to reduce costs. The plant, which had been in operation for more than 30
years, employed more than 50% of the town’s population.
The outlook for the manufacturing sector remains grim. To meet ever increasing
competition from abroad, North Carolina’s manufacturers will look to niche
markets and increased automation as the only way to stay competitive. Both of
these avenues will lead to a further reduction in the amount of labor required,
resulting in more job cuts. The fact that Asia is now becoming the dominant
center for textile and apparel manufacturing is emphasized by the recent news that
Burlington Industries is reducing its workforce by 4,000, with job cuts coming not
only in the United States but also in Mexico. With global trading conditions
remaining weak, and pressure mounting for manufacturers to move to cheaper
production locations outside of the United States, it is expected that
manufacturing employment in the Tar Heel State will contract by around 1.3%
annually through 2007, falling to around 16.0% of total employment.
Global Insight, Inc., 2003, Page 14
Global Insight, Inc., 2003, Page 15
CHAPTER 3: THE OUTLOOK FOR NORTH CAROLINA’S FUEL
AND ELECTRICITY PRICES
Overview
Despite a weak economy, oil and natural gas prices rebounded in 2002, bolstered
by a combination of temporary and fundamental factors. In 2003,
• Market fundamentals will replace fear as a driver of oil prices. Abundant supply
will overmatch demand, and prices will slip slowly as the year progresses. WTI is
expected to average $ 26/ barrel in the second half of 2003.
• Natural gas storage fell to record lows by the end of the 2002- 2003 heating season,
a result of weak performance on the supply side and a cold winter in the major gas-heating
regions. Storage injection will have to compete for available gas supplies
with the rising number of gas- fired electricity generating units throughout the
United States, permitting only slow adjustment in gas prices from the dramatic
mid- winter highs. As new supplies come on line by the second half of the year,
prices should abate somewhat, though remain strong by historical levels. Demand
is likely to remain weak in gas- intensive industries.
• Spot market coal prices, which nearly doubled trough- to- peak in 2001, have now
lost much of those gains. Coal inventories appear to be heading toward normal
levels in the wake of a hot air- conditioning season and a cold heating season.
Nevertheless, coal purchasing remains constrained by a sluggish economy and
heightened competition from hydro and natural gas.
Following modest fluctuations and corrections during the next few years, oil and
gas prices are expected to follow a slow real ( inflation- adjusted) incline to 2020,
reaching levels that are roughly similar to recent prices and below previous peaks.
Rising demand will increase the call on oil and gas reserves and gradually deplete
the least costly supplies, but with steady, relatively solid prices, the necessary
supply development should take place. The risk of price volatility is ever- present,
however, in the event of unexpected demand fluctuations accompanied by less-than-
timely responses on the supply side. Coal prices are likely to decline in real
terms, as continued productivity improvements help coal suppliers compete with
natural gas in the crucial power generation market.
Short- term fluctuations aside, annual average electricity prices to end users are
expected to reflect underlying costs in the power sector, with the most prominent
impact of regulatory restructuring likely to be increased, competition- driven
pressure to contain costs. Improving efficiencies in the power sector and
declining real coal prices should produce flat to declining real end- use electricity
prices. Clearly, further changes in electricity market legislation and regulation at
the state or federal level could have significant impact on future electricity prices.
Global Insight, Inc., 2003, Page 16
At this point, however, the drive to deregulate has been stalled by the California
experience and by revelations of market manipulation by electricity suppliers in
“ open” market states.
Outlook for Crude Oil
In 2002, oil market fundamentals played only a minor role in setting crude oil
prices. The price was set largely by political events that led to increased price
volatility. It could be said that prices were driven to a great extent by fear rather
than fundamentals; the same was true for the first half of 2003, but fundamentals
should replace fear for the second half of the year.
Crude Oil and U. S. Wholesale Petroleum Product Prices
( 2001 Dollars per Barrel)
0
5
10
15
20
25
30
35
40
45
1992 1995 1998 2001 2004 2007 2010
Crude Oil Gasoline Distillate/ Diesel Residual Fuel
Oil markets entered 2003 without 2.5 million barrels per day ( b/ d) of Venezuelan
exports. The loss was brought about by a country- wide strike that ground
operations at Petroleos de Venezuela ( PDVSA) nearly to a halt. The United
States, which takes more than half of Venezuela’s exports ( they account for about
15% of all U. S. oil imports), has been hit hard by the loss of exports, particularly
since U. S. oil inventories were already low. The strike lasted through February,
but resolution of the strike has not meant an instant return to full production
( about 3 million b/ d) for PDVSA. By April, production reached approximately
2.6 million b/ d, and it is believed that it will take until 2004 for production to
return to pre- strike levels. Thus, despite a surge in production from the rest of
OPEC in the first quarter of 2003, markets are lean enough to keep prices at
relatively high levels for much of the year.
Another factor that will keep markets lean is that Iraqi production has been halted
because of the war between Iraq and coalition forces. Iraq was exporting 2.0- 2.5
million b/ d of oil prior to the war, but a resumption of exports is not likely until
July at the earliest, and even then at small volumes. Iraqi exports are not expected
Global Insight, Inc., 2003, Page 17
to surpass 2 million b/ d this year, given the damage done to oil facilities ( by
looting, not war) and the neglect of those same facilities over the past 12 years.
In the aftermath of war, OPEC has been concerned about oversupply as
Venezuelan and possibly Iraqi production ramps up, while the rest of the cartel is
potentially producing at close to capacity. Global demand growth is slated to
increase by less than 1 million b/ d in 2003, growth that will be met by the
expected increases in non- OPEC production. Therefore, OPEC will need to rein
in production or risk a severe price drop. Given OPEC’s penchant for prices in
the mid to upper $ 20s, we believe that the cartel will curtail its output to keep
prices supported. The high price environment seen over the past several years,
however, has encouraged non- OPEC production expansion to the point that the
increases in non- OPEC production should meet most, if not all, of the expected
increases in global demand in 2003 and 2004, thus exerting relentless downward
price pressure that should result in lower prices in 2004.
In the long- term, real crude prices are expected to rise gradually, increasing less
than 1% per year. The long- term forecast is dependent on steadily increasing
global demand as a result of economic expansion, coupled with coordinated
action from OPEC that keeps oil markets adequately, but not over, supplied.
Prices for the refiners’ acquisition cost of foreign crude oil are not seen falling
back to 1998 levels over the forecast interval. Nevertheless, they are expected to
fall to levels lower than what has been seen in recent years, hovering around $ 21-
23/ barrel in real terms through 2012. Price growth accelerates slightly thereafter,
and by 2020, crude prices are expected to reach around $ 25/ barrel, measured in
constant 2001 dollars, the equivalent of around $ 40/ barrel in nominal terms.
North Carolina’s Petroleum Product Prices
North Carolina’s petroleum product prices reflect the international price of crude
oil and the traded price of petroleum products in the Atlantic market. In 2002,
North Carolina’s price for home heating oil ( distillate fuel) was $ 1.23 per gallon,
while the residential price of propane was $ 1.93 per gallon. Both prices are
projected to track crude oil prices through 2020. Industrial distillate and residual
fuel prices have been very high lately reflecting the vagaries of the crude oil
market.
Global Insight, Inc., 2003, Page 18
U. S. Wholesale Residual Fuel Price and North Carolina’s Delivered
Price of Residual Fuel by Sector ( 2001 Cents per Gallon)
0
10
20
30
40
50
60
70
1992 1995 1998 2001 2004 2007 2010
Wholesale Residual Fuel Commercial Industrial Pow er
Retail motor gasoline will end the forecast essentially flat in real terms. In 2002,
both wholesale and retail gasoline prices rose again, and are projected to decline
when crude oil prices weaken. Real declines in federal, state, and local taxes will
result in retail motor gasoline prices remaining essentially flat through the latter
half of the forecast.
U. S. Wholesale Gasoline Price and North Carolina’s Pump Price of
Gasoline ( 2001 Cents per Gallon)
0
20
40
60
80
100
120
140
160
1992 1995 1998 2001 2004 2007 2010
Wholesale Gasoline Pump
Distillate fuel prices in the electric power sector will rise faster than either natural
gas or coal. Electric power sector distillate prices hovered near $ 5.11 per mmBtu
in 2002. Longer term, distillate fuel oil prices will track the change in crude oil
prices, reaching $ 6.06 per mmBtu in 2010.
Global Insight, Inc., 2003, Page 19
U. S. Wholesale Distillate Price and North Carolina’s Delivered Price of
Distillate Fuel by Sector ( 2001 Cents per Gallon)
0
20
40
60
80
100
120
140
160
1992 1995 1998 2001 2004 2007 2010
Wholesale Distillate Residential Commercial
Industrial Pow er
Natural Gas
Natural gas prices rose sharply in late 2002 as weather- driven demand sky-rocketed,
and are projected to remain high through 2003 driven by economic
recovery and declines in productive capacity. The gas rig count dropped sharply
in 2002 because of low prices and has not recovered even though prices exceeded
$ 5/ mmBtu during the winter. Consequently, natural gas productive capacity is
likely to decline during 2003, while natural gas consumption will increase as the
U. S. economy recovers.
A key issue is the cost of developing and producing incremental gas supplies. At
present, 85% of U. S. gas is from the Lower 48 states— down from 97% in 1986.
Increasing production in the Lower 48 should be the most immediate source of
new supply, but until recently, these production levels have been stagnant. Even
after the gas rig count increased 46% in 2000 and 37% 2001, natural gas
production increased only some 2% per year. Thus the outlook for supply growth
is muted, and demand growth, also expected to be around 2% per year, will have
to be met with increased imports or unconventional sources such as the deep
water, coalbed methane, liquefied natural gas ( LNG), deep drilling, Mackenzie
Delta, and Alaska. There is substantial uncertainty about what these supplies will
cost. The supply cost for the largest incremental supplies of natural gas available
to the United States is expected to exceed $ 3 per million Btu.
Economic expansion, albeit slow, will increase requirements for natural gas in
2003 and beyond. Will supplies be available? At what price? Despite recent high
prices, expenditures on exploration and production ( E& P) are not rising. U. S.
expenditures are expected to decrease by 0.7%, while estimates of finding costs
are up. Further, producers state that a lack of qualified prospects has diminished
enthusiasm for investment. Thus, the prospects for U. S. supply growth are poor.
Global Insight, Inc., 2003, Page 20
Supplies from Canada are also under pressure. The National Energy Board
expects gas production from the Western Canadian Sedimentary Basin ( WCSB)
to fall about 600 million cubic feet per day ( mmcfd) over the next two years, even
with substantial increases in drilling.
While the country’s traditional natural gas supplies may not increase in 2003,
there are some positive supply developments, including the reopening of the Cove
Point LNG facility, the start- up of the Kern River pipeline expansion, and the
Okeanos offshore pipeline. Coalbed methane production in Wyoming will
increase by several hundred mmcfd, exceeding 1 bcf/ day in 2003. The Barnett
shale area is also expected to be a source of significant production increases.
These expansions will start having an impact by mid- 2003, thus pushing the
highest risk of price spikes into the first half of the year, prior to the major supply
additions.
While the outlook is not sanguine, supply and demand have some room to adjust,
such that any crisis should be short- lived. During past price surges, inter- fuel
substitution, greater use of natural gas liquids, and closure of gas- intensive
industry accounted for several bcf/ day of net change. With LNG imports at 0.5
bcf/ day in 2002 and LNG import capacity rising to nearly 2.7 bcf/ day in 2003, a
large increase in LNG imports is also possible. Further, there are several bcf/ day
of available pipeline capacity from Canada that could be filled by increased
drilling in Alberta, British Columbia, and Saskatchewan. Thus, supply and
demand will respond to price signals, and price spikes are likely to be transitory
rather than permanent in the short- term.
Longer term, U. S. natural gas prices will reflect the cost of new supply sources as
demand increases steadily. Increased imports are the principal option for
increased gas supply in 2003– 2010, while Alaskan gas will not become available
until after 2010 because of the lead time required to reach consensus on
development and to build a pipeline. Expanded development of coalbed methane
and offshore Gulf of Mexico are also being pursued. With western Canadian
supply facing similar issues as the United States, net increases in supply will most
likely be from LNG or ultimately the Arctic.
The outlook for LNG trade growth is positive for 2004 and beyond as world
supplies of LNG increase rapidly. LNG will grow in importance and help to set
the long- run price of gas in the United States. New LNG projects can be
developed at $ 2.85- 4.00 per million Btu delivered to pipelines in the U. S. The
lower end of the price band reflects additions to the Atlantic LNG project in
Trinidad and use of existing terminals, while the higher estimates reflect the costs
for developing LNG at new sites more remote from the United States. Pre-existing
receiving and regasification facilities would handle initial growth in U. S.
LNG imports, which lowers the price required to make LNG economic.
Global Insight, Inc., 2003, Page 21
Alaskan gas could be shipped to major U. S. markets via pipeline beginning in
2010. The principal destination of the gas would be Chicago, entailing a pipeline
from the North Slope to Alberta and then expansion of existing Alberta to
Chicago capacity. Estimated project costs for transporting natural gas from
Alaska to Alberta range from $ 8 billion to $ 17 billion. The most recent estimates,
released by the Mackenzie Delta Producers Group, were $ 15 billion for the
northern route to $ 17 billion for the southern route. Thus, Alaskan gas will not be
developed until Henry Hub prices exceed $ 3.00/ mmBtu ( 2001 dollars) for an
extended period.
North Carolina’s Natural Gas Prices
North Carolina’s delivered cost of gas is comprised of the commodity cost of gas
plus the cost of transmission and distribution. While the commodity cost of gas is
market- based, transmission and distribution costs remain largely subject to
regulatory oversight. Over the long term, unbundling of the merchant function
from transmission and distribution costs are creating competitive forces to reduce
costs. In addition, the rapid growth in natural gas use for electric generation is
raising the utilization rate of transmission and distribution facilities. Thus, the
non- commodity components of retail prices are likely to decrease in real terms.
U. S. Average Wellhead Price of Natural Gas and North Carolina’s
Delivered Price of Natural Gas by Sector ( 2001 Dollars per Million Btu)
0
2
4
6
8
10
12
14
1992 1995 1998 2001 2004 2007 2010
Wellhead Price Residential Commercial
Industrial Electric Utilities
Global Insight, Inc., 2003, Page 22
The residential price of natural gas in North Carolina is expected to increase
gradually. In 2002, the price of natural gas in the residential sector was
$ 9.36/ mmBtu and the commercial natural gas prices was $ 7.15/ mmBtu. In 2003,
delivered prices will remain high as the commodity cost of gas ( the price of gas at
the wellhead) will be expensive. Through 2020, both residential and commercial
natural gas price will fall 0.5% annually in real terms.
In the industrial sector, the price of natural gas in 2002 reached $ 4.70/ mmBtu.
Prices will stay high in 2003, but should weaken in 2004. After 2005, gas prices
will rise at an annual rate of 0.3% in real terms.
In the electric power sector, the price of natural gas reached $ 4.66/ mmBtu in
2002, and are projected to average $ 5.22/ mmBtu in 2003. In 2020, the price is
projected to rise slowly reaching $ 7.62/ mmBtu in real 2001 dollars.
Coal
Following several years of turmoil, coal markets at the end of 2002 are reaching a
critical juncture. There are strong competing forces at play, some of which are
pressuring coal prices to be higher, while others tend to suppress those same
prices. Not surprisingly, many buyers and producers have opposing views as to
where prices are heading, leading to a decided difference in perspective that
becomes evident as these two groups try to reach agreement at the contracting
table. Global Insight’s perspective is that while coal prices must be higher than
what was experienced in the very low period of 1999- 2000, they must nonetheless
be highly competitive given the strong environmental and inter- fuel pressures that
will emerge in the next few years.
A brief review of the turmoil experienced recently in coal markets begins with the
very soft, declining market conditions that pervaded 1999 and most of 2000. The
first six months of 2000 were particularly weak, as the warm winter of 1999- 2000
left power companies with high stockpiles and very little interest in spot market
purchases. This lack of purchasing activity, coupled with a generally dismal
outlook for coal in the long run, led many suppliers to exit the market or sell their
holdings to other companies, leading to a highly consolidated coal producing
industry.
The winter of 2000- 2001 was both early and severe, catching a large portion of
the power industry short on coal inventory. When power companies attempted to
bring in large volumes of coal in order to meet strong electricity demand, as well
as shore up their dwindling stockpiles, the coal industry responded with higher
prices instead of their customary return to higher production. Part of this response
was due to the inability of some of the coal industry to actually produce sufficient
quantities of coal given the massive closure of mining capacity ( e. g., in much of
the East). At the same time, part of the response was a deliberate effort by the
more consolidated industry to demonstrate its market power by keeping idled
capacity shut, thereby pressuring prices up.
Global Insight, Inc., 2003, Page 23
Prices spiked in most coal mining regions in early 2001 at nearly twice the
previous year’s mine- mouth price. Between then and now, however, prices have
fallen ( although not to the very low levels in 2000). The major reasons behind the
market price decline have been moderate weather, a lackluster economy resulting
in reduced coal- fired generation, the strong return of hydropower from its very
low generation in 2001, the emergence of natural gas as a major competitor for
electricity generation, and the determination of power company coal buyers to
replenish their inventories as a protective measure against potential shortages in
the future.
Coal prices in the near future ( three years out) are likely to be characterized by the
following trends:
Higher Prices. While not reaching anywhere near as high as the prices seen
during the 2001 market surge, prices will be at a level well above those
experienced in the previous decade and before. This situation is due largely to the
greater concentration in the coal industry, which leaves suppliers less likely to
commence higher production in the absence of long- term market commitments.
At the same time, the higher prices reflect a growing awareness on the part of
buyers that the prices of the pre- 2001 period were simply too low to sustain a
healthy, competitive coal industry.
A More Volatile Spot Market. The spot market for coal has historically
maintained a lower price than found in the contract market, stemming from the
fact that coal was generally widely available, with too much production chasing
too little demand. As coal industry consolidation has occurred, excess mining
capacity has been greatly reduced. As a consequence, unexpected surges in coal
demand— whether from increased economic activity or possibly lower electricity
generation from competing sources ( such as hydro or natural gas)— could result in
substantial price spikes as the coal industry responds more deliberately. To a
great extent, price volatility will be more evident on the “ high price” side, as coal
companies seek to create a floor to price declines by simply shutting in capacity.
Greater Reliance on the Contract Market. Contracting for coal may well come
full circle. Throughout much of the 1980s and 1990s, most power companies
were saddled with high- priced, long- term coal contracts while prices in the short-term
market continued to fall. As these contracts expired, many buyers shifted
more of their purchases to the short- term market. This turned out to be a very
effective strategy all the way up until late 2000, when prices spiked and power
companies were saddled with extremely high prices. As a result of this greater
volatility in the spot market described above and the greater concern over coal
availability given the industry’s consolidation, many power companies are making
efforts to negotiate longer- term supply arrangements. At the same time, these
companies are inserting periodic price reopeners into these contracts to ensure
some consistency with general market trends.
Global Insight, Inc., 2003, Page 24
Three major trends are likely to drive the coal market in the long term:
Increased Inter- Fuel Competition and Environmental Requirements Will
Lead Coal Producers to Price Attractively. Over time, coal will experience
considerable competition from an influx of highly efficient natural gas generation.
Moreover, the pressure will build for power companies burning coal to install
costly pollution control equipment to deal with such problems as SO2, NOx,
regional haze, PM2.5, and mercury, among others. SO2 is the main cause of fine
particles, haze, and acid rain, while NOx is the main cause of ozone and
contributes to acid rain and haze. This fuel competition and additional generating
cost will leave relatively little room for coal to increase prices substantially and
still remain competitive.
Productivity Gains Will Allow Coal Companies to Keep Prices Low While
Simultaneously Improving Their Profit Situation. The modestly higher prices
we expect to see in the short term will serve as a base for coal companies to
reinvest in productivity- enhancing equipment after several years of neglect. This
investment will, in turn, lower production costs, allowing coal companies to price
their product competitively without sacrificing profit margin. Some coal regions
with favorable geological conditions ( e. g., the Powder River Basin) will succeed
in achieving major productivity gains, while a select few other areas experiencing
more difficult mining conditions ( e. g., Central Appalachia) will struggle simply to
hold onto the productivity levels they have currently achieved.
Higher- Sulfur Coals Will Substantially Increase Their Output Due to
Environmental Pressures and Lower Delivered Coal Prices to Power
Companies. Current regulations favor the use of low- sulfur coals as a least cost
compliance strategy, but toward the end of this decade, an increasingly large
number of coal- fired units will be forced to scrub ( i. e., install flue gas
desulfurization equipment). After having made such an investment in this
pollution control equipment, the incentive for coal buyers will change from
seeking a low- sulfur coal to seeking the most inexpensive coal, regardless of
sulfur content ( since the scrubber will remove almost all the SO2 before it can exit
the stack). As a result, high- sulfur coalfields such as the Illinois Basin and
Northern Appalachia will flourish as many power plants in proximity to these
regions switch. At the same time, we do not anticipate that low- to- mid sulfur coal
markets will suffer greatly, as scrubber technologies emerge that reduce the
scrubber costs for these coals ( relative to high- sulfur coals) and make them
competitive in many instances with the higher- sulfur coal alternative.
Competition, from natural gas and within the coal industry itself, coupled with
productivity gains as coal mining becomes more automated will drive real coal
prices lower over the long term. Most above- market, long- term coal contracts
have already expired, leading to sizeable price declines to date.
Global Insight, Inc., 2003, Page 25
Coal Prices in North Carolina
North Carolina’s power generators buy most of the coal they burn from the
Central Appalachia region. In 2002, the average mine- mouth price of coal in this
region was $ 23.08 per ton ($ 1.09 per mmBtu). Long term, the average mine-mouth
price of coal in Central Appalachia will reach $ 20.64 per ton in real 2001
dollars. The delivered price of coal to North Carolina’s power generators closely
tracks the mine- mouth price reflecting the short distance between the producing
region and the state.
Central Appalachia Minemouth Price of Coal and North Carolina’s
Delivered Price of Coal by Sector ( 2001 Dollars per Million Btu)
0.0
0.5
1.0
1.5
2.0
2.5
1992 1995 1998 2001 2004 2007 2010
Mine- Mouth Price Industrial Electric Pow er
Electricity Price
The U. S. power market continues to be dominated by the same issues that it faced
in early 2002. The unraveling of retail competition in California has essentially
halted the implementation of retail competition in other states. While many of the
problems that plagued California can be attributed to the design of California's
competition legislation, unusual weather conditions, and supply constraints, many
states have chosen not to open their retail markets to competition. States are
concerned that competitive markets will generate volatile retail prices and will
lead to supply shortages.
With retail markets in many regions of the country remaining traditionally
regulated markets, near- term prices in these regions reflect an embedded cost
structure. In regions where retail competition has been implemented, retail prices
reflect different pricing methodologies for transmission and distribution ( T& D)
services and generation services. In these regions, it is expected that in a balanced
market, increased competition will put downward pressure on costs and produce
market- based retail prices that resemble embedded costs, plus a rate of return.
Global Insight, Inc., 2003, Page 26
The amount of the rate of return will vary between hours, days, seasons, and
regions, but in the end, generators must earn a positive rate of return in order to
compete in the market. T& D prices have historically been based on cost of
service. They will remain regulated and will continue to be based on cost of
service, with performance- based rate- making ( PBR) incentives.
Average Retail Electricity Prices
( 2001 Cents per Kwh)
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
1992 1995 1998 2001 2004 2007 2010
NC South Atlantic U. S.
North Carolina’s Electricity Price Outlook
Real electricity prices are forecast to fall over time, driven by a variety of changes:
competitive pressures, additional capacity in supply- short regions, declining coal
prices, and efficiency improvements for new generation technologies. All
customer classes will benefit from lower real electricity prices, with price declines
averaging roughly similar rates across the residential, commercial, and industrial
sectors.
Global Insight, Inc., 2003, Page 27
North Carolina’s Retail Electricity Prices by Sector and
the State Average Cost of Fuel Input to Power Generation
( 2001 Cents per Kwh)
0
2
4
6
8
10
12
1992 1995 1998 2001 2004 2007 2010
Average Cost of Fuel Residential Commercial Industrial
In North Carolina, real residential prices will fall from 8.0 cents/ kWh in 2002 to
6.1 cents/ kWh ( 2001 dollars) in 2020. Real commercial rates will decline at 1.5%
per year over the forecast period ( 2002- 2020). The commercial electricity price in
2020 is expected to reach 4.9 cents/ kWh ( 2001 dollars), down from 6.4 cents per
kWh in 2002. Real industrial rates will decline at 1.5% per year to 3.5 cents/ kWh
( 2001 dollars) by 2020, from 4.6 cents/ kWh in 2002.
Global Insight, Inc., 2003, Page 28
Global Insight, Inc., 2003, Page 29
CHAPTER 4: ENERGY CONSUMPTION IN NORTH CAROLINA
Energy consumption in North Carolina will be driven by growth in all sectors.
The sector expected to grow the fastest is the transportation sector ( 2.3% annual
growth over the period 2002 to 2020) closely followed by the residential and
commercial sectors ( each of which are projected to grow at an annual rate of
around 2.0%). The industrial sector is projected to grow at a 1.5% annual rate.
Residential
Over the longer term, population and income growth will drive energy demand in
the residential sector. The resident population in North Carolina will grow 1.3%
annually over the period 2002- 2020. Real personal income and disposable
income will also increase faster than real wages, due to real increases in non- wage
incomes. As the population becomes wealthier, more energy consuming
appliances will be used. Although there will be a trend toward more efficient
appliances penetrating the average household in North Carolina, the additional
demand will be larger than offsetting efficiency improvements. Therefore, as
population expands and each person uses more energy each year, total residential
energy demand will rise by 2.0% annually between 2002- 2020. Residential
energy use per person will rise slowly from 36.1 tBtu/ capita in 2002 to 40.5
tBtu/ capita in 2020.
Total residential energy demand grew 3.4% annually between 1990 and 2000.
Over the more recent past, between 1995 and 2000, declining real energy prices
combined with growing housing stocks caused demand to grow 2.1% per year.
The strength of demand growth in the sector is led by demand for electricity,
natural gas, and propane. By 2010, total residential energy consumption is
expected to exceed 358 TBtu. Electricity and natural gas will capture most of the
demand increases over the forecast period.
As residential fuel consumption rises, efficiency in the sector will improve
slowing overall growth. The consumption per household of direct fuels, which
consist of LPG, distillate, wood, and natural gas, will remain constant over the
forecast period as a result of increased demand counterbalanced by increasing
energy efficiencies. Electricity use per household will increase, as further use of
electrical appliances in the home will boost electricity demand faster than the
offsetting effects of more efficient appliances.
Petroleum products as a group will increase 1.6% per year over the forecast
period. Petroleum's market share will decline from 19% in 2002 to less than 18%
in 2020. Consumption of distillate fuel will increase at a 0.8% annual rate
between 2002 and 2020, while demand for kerosene will increase at a 1.3%
annual rate. Demand for propane is expected to increase 2.2% per year over the
forecast period, and it will become the dominant petroleum product in the
Global Insight, Inc., 2003, Page 30
residential sector. Propane surpassed demand for distillate in 2000, and will
continue to supplant it over the forecast period. By 2010, propane demand will
have increased 6.0 TBtu over its 2002 level. Sales of propane are unregulated in
North Carolina and the growth potential of the market is significant because it is
more versatile than home heating oil.
Technological advances in natural gas heating systems will provide a boost to
gas demand over the forecast period. The share of natural gas in residential
demand will increase from 21.3% in 2002 to 21.8% in 2010. In order to gain that
share of residential demand, 13.9 TBtu more of natural gas will be consumed in
2010 than in 2002, resulting in an annual increase in demand of 2.2%.
Electricity is the dominant residential fuel, with 54.5% of the market in 2002. Its
share is expected to increase over the forecast period to over 55% due to increased
penetration of electric appliances and fuel switching away from oil products.
Increased use of cooling systems will also foster an increase in electricity
consumption over the forecast period. Final residential demand is expected to
reach 236 TBtus by 2020, causing an annual rate of increase in residential
electricity demand of 2.0% ( 2002- 2020).
Wood use in the residential sector should increase in absolute terms over the
forecast period at an average annual rate of 1.6% per year. This increase,
however, will be slower than the increase in energy demand for the sector as a
whole. Thus, the share of wood will decline slightly from 4.8% in 2000 to 4.7%
in 2010. While wood is a plentiful source of fuel in North Carolina and there are
initiatives to expand its use, it will remain a marginal source of energy for home
heating due to its lack of convenience compared to natural gas and electricity. As
urban areas expand, wood use as a primary fuel is expected to decrease.
However, it will be increasingly used as a secondary fuel in fireplaces and wood
stoves. Its use is expected to increase 33% over the forecast period, to
approximately 16.9 TBtu by 2010.
North Carolina is a major center in the country for solar research and information
dissemination. Its position as such will enable it to expand the use of active and
photovoltaic ( PV) solar technologies faster than in the country as a whole. The
use of solar, however, will be limited by its unfavorable economics compared to
traditional fuels. Typically, homeowners are reluctant to embrace technologies
with long payback periods, and advances in photovoltaic are unlikely to materially
change the economics of solar energy over the forecast period. Thus, we expect
solar to increase gradually, but it will only retain its current marginal share of the
market at 0.2%.
Commercial
Commercial sector energy consumption in North Carolina will grow faster than
the national average over the forecast period as North Carolina continues to be a
magnet for job growth. This growth is reflected in the expected increases in non-manufacturing
employment, outpacing the actual decline in job growth in the
Global Insight, Inc., 2003, Page 31
manufacturing sector. In 2002, non- manufacturing employment represented 79%
of total employment, and is projected to rise to 83% by 2010.
In the non- manufacturing sector, services, trade, and state and local governments
make up the bulk of employment in North Carolina. Both services and
governmental employment will grow faster than the non- manufacturing sector
overall, emphasizing the changing nature of the commercial sector in North
Carolina. Together these two sectors will grow from 41% of all employment in
2002, to 44% in 2010.
The unemployment rate in the state is projected to return to levels experienced
during the 1990s. This level will tend to put upward pressure on wages
throughout the forecast period, forcing companies to look for alternative cost-cutting
measures. In the commercial sector, this will mean reducing the energy
use per employee, or per square foot of commercial space. Increased business
activity will largely offset any conservation gains made, however. Total
commercial sector energy demand is thus expected to rise by 1.9% annually
between 2002 and 2020. This represents an increase of 39% over 2002 levels.
In terms of efficiency in energy use, commercial energy consumption per person
is forecasted to grow at an annual rate of 0.5% between 2002 and 2020 while
commercial energy consumption per employee is projected to grow at a similar
rate over the same time period.
As in the residential sector, use of petroleum products will decline over the
forecast period. While the decline in oil use will be gradual, the share of oil in the
fuel mix will drop from 10.6% in 2002 to 8.2% in 2020. Of the different oil
products, distillate fuel represents the majority of current oil demand in the
commercial sector, 64% in 2002. Its share of the market is expected to slightly
decrease. By 2020, distillate’s share of petroleum product demand will increase
to below 60%. Many of the same market and environmental forces that are
present in the residential sector are also at work in the commercial sector. These
will cause LPG demand to increase sharply over the forecast period. Its status as
a premium fuel compared to other oil products will allow it to increase its
penetration as an oil product, but competition from natural gas and especially
electricity will prevent it from increasing its share of total sectoral demand.
The current natural gas demand level of 41 TBtu represents 20% of the total
demand for commercial fuels in 2002. Demand for natural gas should increase
considerably over the forecast period as infrastructure constraints are reduced. Its
level of use in the sector will increase along with other demands, leaving natural
gas with the same level of market share in 2010, representing an annual demand
increase of 0.2%.
The share of electricity in the commercial fuel mix has increased steadily over
time, from 61% in 1990 to 67% in 2002. The ease of use, coupled with lower
prices, will contribute to the increasing use of electricity as further penetration of
computers and other electrical appliances into the market. By 2010, electricity
Global Insight, Inc., 2003, Page 32
will capture over 68% of the entire commercial market. Over the forecast period,
electricity demand in the commercial sector will rise 2.1% annually between 2002
and 2020.
Industry Excluding Agriculture
Between 1990 and 2000, industrial output grew an average 4% annually. Over
the forecast period 2002- 2020, this rate will slow to 2.3% as more of the North
Carolina economy moves into the non- manufacturing service field. In addition,
increased automation and worker productivity will help support further output
increases with a shrinking manufacturing workforce. Between 1990 and 2000,
manufacturing employment grew an average rate of only 0.3% per year; over the
period 2002- 2020 manufacturing employment is projected to decline at a rate of
0.5% per year. The mix of manufacturing that goes on inside the state will change
as well, moving more toward higher value added industries as cheaper energy is
available in other states close to the production centers for energy intensive
industries.
Based on these trends, total industrial sector energy demand is expected to trail
that of the residential and commercial sectors. Between 1990 and 2000, industrial
energy demand grew at an annual rate of 2.1%. Over the forecast period 2002-
2020, this should grow 1.3% per year. Higher energy prices in North Carolina, as
compared with energy producing states, will encourage conservation and the
employment of more energy efficient processes. Thus, the annual increases in
energy demand will be much lower than the increases in industrial output.
In terms of efficiency in energy use, industrial energy consumption per person
will hold flat between 2002 and 2020 while industrial energy consumption per
unit of output will decline at 2.6% annual rate over the same time period.
Unlike the residential and commercial sectors, petroleum products are expected
to continue to experience some growth in the industrial sector over the forecast
period. As a whole, the demand for oil products should rise 0.3% annually
between 2002 and 2020, while residual fuel use will fall 0.2% per year and
distillate will decline 0.3% per year. Demand for propane should remain
relatively flat, increasing only 0.5% per year over the 2002- 2020 period. It will
experience strong competition from natural gas, especially as investments are
being made in natural gas supply infrastructure as exemplified by the recent
substantial bond issuance directed towards providing additional natural gas
supplies to those regions of the state without current access.
Natural gas demand in the industrial sector will experience strong demand as
industrial operations move from fuels such as coal to cleaner fuels like natural
gas. Since many industrial customers use interruptible contracts and do not rely
on distribution systems, they pay considerably less for their gas than residential or
commercial customers do. These factors will allow demand for natural gas to
experience strong growth over the forecast period. Natural gas demand is
expected to expand 1.7% annually between 2002 and 2020, capturing an
Global Insight, Inc., 2003, Page 33
increasing share of the fuel mix. Indeed, its share should grow from 23% in 2002
and 25% by 2020.
Automated equipment and controlled heat applications will drive industrial
electricity demand over the forecast period. Over the past 10 years, electricity
demand grew 0.9% per year. As more industry introduces electrically powered
machine drives, electricity demand will increase at an annual rate of 2.2% over
the 2002- 2020 period. Current ( 2002) electricity demand levels of 106.1 TBtu's
represent 26% of the industrial fuel market. By 2010, industrial electricity
demand is expected to be 28% of the fuel mix.
Industrial wood use is significant at 77 TBtu in 2002. State incentives and pilot
programs designated to integrate wood as an industrial fuel were very successful
and were largely responsible for its large share of demand. Indeed, wood is a
cheap and plentiful resource in North Carolina and its use as an industrial fuel
provided a secure energy source. Furthermore, the state's furniture manufacturing
provides a large source of scrap wood and wood dust that can be converted to
energy. Increased penetration of wood, however, is limited because of its burning
efficiency, air quality concerns, and the inconvenience of employing it compared
to gas, electricity or coal. Demand for the fuel will grow over the forecast period,
but much more slowly than energy consumption in the sector as a whole.
Demand will grow at 1% per year between 2002 and 2020.
Agriculture
The agricultural sector is an important energy consumer in the state of North
Carolina. The sector’s energy consumption is driven by the demands created by
farm equipment and irrigation systems.
Electricity will be the strongest area of growth at 3.1% per year over the period
2002- 2020, as power is needed for industrial equipment and irrigation systems.
The demand for natural gas will be fairly strong through its use as a fuel for
heating and cooling. It is projected to grow at a 1.6% annual rate. Petroleum use
will be largely driven by the need to operate farm equipment.
Transportation
Petroleum currently dominates transportation sector fuel use and will continue to
do so over the forecast period. Although there were several pieces of energy-related
legislation passed a dozen years ago that were designed to alter the types
of fuels used in transportation ( the Clean Air Act Amendments of 1990 and the
Energy Policy Act ( EPAct) of 1992), the impact on the market has been
negligible. That said, national and state efforts continue, and over the forecast
alternatively fueled vehicles are expected to be fueled using compressed natural
gas ( CNG), propane, biodiesel, and ethanol.
In terms of efficiency in energy use, transportation energy consumption per
person will grow at an annual rate of 1.0% between 2002 and 2020.
Global Insight, Inc., 2003, Page 34
Transportation energy consumption per person can be further analyzed in terms of
on- road transportation energy consumption per person and off- road transportation
energy consumption per person. On- road energy transportation consumption per
person is expected to grow at an annual rate of 0.9% while off- road energy
transportation consumption per person is projected to grow at an annual rate of
2.3%.
Total demand for transportation fuels has grown at an average annual rate of
2.8% since 1990 in North Carolina. Growth since 1995 has been slightly higher,
averaging 3.3% annually making the transportation sector the largest end- use
demand sector in the state. Population and the economic growth of the state will
be the main drivers for energy in the transport sector during the forecast. Vehicle
miles traveled ( VMT) are set to grow 2.2% per year, leaving 2010 levels nearly
20% higher than in 2002.
Oil products accounted for 99% of the energy consumed in this sector in 2002
and will maintain near this level of market dominance throughout the forecast.
Among the various oil products, motor gasoline demand is the largest, although
distillate fuel ( diesel) is also growing rapidly. Jet fuel demand will increase at an
annual 4.3% rate between 2002 and 2020 as regional hub- airports like Charlotte
and Raleigh- Durham continue to expand.
The overwhelming majority of natural gas used in the transportation sector is
used to power the pipeline delivery system. As natural gas usage in the state
increases, especially with regard to the electric power industry, natural gas used
for transporting this fuel will also increase. As owners of vehicle fleets expand
their use of natural gas vehicles, this segment will also rise, but only at a moderate
rate. In total, natural gas use in the transportation sector amounted to 7.2 TBtus in
2000. This total will increase more slowly in the early years of the forecast, but
will rise rapidly with the continued adoption and increased use of natural gas fired
electricity generation facilities in the state later in the forecast.
Power Generation
North Carolina's prosperous economic outlook and strong population growth will
drive electricity demand steadily upwards. Electricity demand grew an average
2.9% per year between 1990 and 2000. However, since 1995, total electricity
demand has slowed to a 2.7% annual growth rate. Over the forecast period, while
demand will be strong, it will not grow at its historic pace. Between 2002 and
2020, electricity demand growth is projected to increase 2.1% annually. As a
result of this growth, fuel demand growth for the power generation sector is
expected to be robust.
North Carolina’s capacity mix is heavily skewed towards base load generation.
Over the forecast, both Carolina Power and Light and Duke Power have
announced plans to add capacity to meet peak demand. Peak demand has grown
significantly over the recent past. During the next seven years, over 3 gigawatts
Global Insight, Inc., 2003, Page 35
of oil and natural gas fired capacity additions are planned. This will
predominately be combined cycle and combustion turbine installations. Over the
longer term, Global Insight’s predicts that 1,800 megawatts ( MW) of coal- fired
capacity will be built to meet expanding baseload requirements.
North Carolina’s hydro production depends on streamflow. Thus, hydro
utilization fluctuates over history. Over the forecast period, hydro utilization is
assumed to be constant at its historic average. Nuclear power capacity within the
state was treated in the same manner. Nuclear utilization factors are much higher
in North Carolina than nationally, reflecting the above- average performance of the
state’s nuclear reactors. For the future of nuclear power in the state, the
Brunswick 2 reactor will reach the end of its operating license in 2014, and the
Brunswick 1 in 2016. The Harris and McGuire facilities will not reach the end of
their current operating licenses until after 2020.
Coal demand will rise over the forecast as base load and intermediate load
requirements increase. Utilization rates of coal- fired facilities will increase over
time as the utilities continue to work towards more efficient operations. Higher
utilization rates will increase the coal input until the end of the forecast period
when additional coal capacity is forecast to come on line. This will also increase
coal demand by the electric power industry.
Natural gas and distillate are expected to grow as peaking capacity is added. In
addition, as these new facilities are transitioned to cover intermediate load, the
utilization of the oil and gas facilities will increase. As a result, demand for both
fuels will increase sharply after 2005 when peak demand drives the need for
additional capacity additions.
Use of other fuels, including renewable sources, is also expected to expand.
Increasingly, the use of renewable fuels will be determined by economic factors.
Improvements in heat rates could have an enormous impact on variable
production costs for these plants. If technological advances or economic
incentives are not forthcoming, however, these fuels will remain a marginal
source for power generators.
Emissions
Emissions of toxic gases and substances pose a serious threat to air quality in
North Carolina. In 2002, Governor Mike Easley signed into law the Clean
Smokestacks Bill. Under the legislation, North Carolina’s 14 coal- fired plants
must reduce their emissions of key pollutants responsible for the ozone, which are
unhealthy to breathe and damage trees and crops; fine particles, which are
unhealthy to breathe and cause haze that obscures scenic views and harm tourism;
and acid rain, which is harmful to aquatic life, forests, and soils. In particular, the
legislation will require power plants to reduce:
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• Nitrogen oxide ( NOx) from 245,000 tons in 1998 to 56,000 tons by 2009
( 78%). NOx is the main cause of ozone and contributes to acid rain and
haze.
• Sulfur dioxide ( SO2) emissions from 489,000 tons in 1998 to 250,000
tons by 2009 ( 49%) and 130,000 tons by 2013 ( 74%). SO2 is the main
cause of fine particles, haze, and acid rain.
In addition, the legislation requires the North Carolina Division of Air Quality to
conduct a study of mercury and carbon dioxide emissions in the state. As an
added benefit, the equipment needed to reduce SO2 emissions is expected to cut
mercury emissions by about 50%. Airborne mercury eventually winds up in
streams and lakes where it can accumulate in certain kinds of fish, making them
unsafe to eat.
Utility companies will be required to cut their emissions year- round at power
plants within North Carolina. The legislation differs from federal rules, which
only apply during the ozone season ( April through October), and allows utilities
to buy or trade pollution credits from other states instead of cutting air pollution
from plants in North Carolina.
The legislation will yield important health benefits for citizens of North Carolina
and other states by significantly reducing pollution events that can trigger asthma
and other respiratory problems. The cuts in both SO2 and NOx emissions are
expected to reduce acid rain and serve as a significant step toward meeting the
new federal fine particle and ozone standards in North Carolina. The cuts will
also help to improve visibility in the mountains and other scenic areas.
Another pollutant of increasing concern is CO2, a greenhouse gas. Carbon
dioxide emissions from the combustion of coal, oil, and natural gas have been
growing steadily in North Carolina and across the nation. Carbon dioxide
emissions in 2000 were 44.6 million tonnes, and are projected to grow to 67.9
million tonnes by 2020.
Global Insight, Inc., 2003, Page 37
CHAPTER 5: COMPARISON OF NORTH CAROLINA ENERGY
PRICE, CONSUMPTION, EXPENDITURES
The state of North Carolina has an energy profile that is distinct from the other
South Atlantic states and the United States as a whole.
Residential Sector
Total residential energy consumption per capita in North Carolina will grow at a
slower rate than for the United States and the slower than the South Atlantic
region as a whole. Residential energy prices in North Carolina will increase at
about the same rate as the rest of the country.
Residential Energy Sector
North Carolina South Atlantic* United States*
Consumption (% growth 2002- 2020)
Electricity 2.0 2.4 2.1
Natural Gas 2.2 2.9 1.4
Distillate Fuel 0.8 - 0.6 - 0.1
Propane 2.2 1.2 0.8
Total 2.0 2.3 1.5
Total per Capita 0.6 1.1 0.7
Retail Prices, Nominal (% growth 2002- 2020)
Electricity 0.9 1.3 1.1
Natural Gas 1.9 1.9 2.1
Distillate Fuel 3.1 3.1 3.1
Propane 3.1 -- --
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Commercial Sector
Commercial electricity in North Carolina will grow at a slower rate than for the
South Atlantic states, while natural gas is projected to grow somewhat more
slowly. Commercial sector energy prices in North Carolina will increase slightly
slower than for the South Atlantic states and the United States.
Global Insight, Inc., 2003, Page 38
Commercial Energy Sector
North Carolina South Atlantic* United States*
Consumption (% growth 2002- 2020)
Electricity 2.1 2.3 1.9
Natural Gas 1.8 1.8 1.1
Distillate Fuel - 0.1 - 0.1 - 0.5
Residual Fuel - 0.3 - 2.2 - 1.1
Total 1.9 2.1 1.4
Total per Capita 0.5 0.9 0.6
Retail Prices, Nominal (% growth 2002- 2020)
Electricity 0.9 1.4 1.0
Natural Gas 2.0 2.0 2.2
Residual Fuel 2.8 2.8 2.7
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Industrial Sector
Industrial natural gas consumption in North Carolina will grow at a faster rate
than for the South Atlantic states or the rest of the nation. It will grow at a slower
rate for electricity. Industrial sector energy prices in North Carolina will increase
at a slower rate than the other South Atlantic states or the nation as a whole.
Industrial Energy Sector
Sector North Carolina South Atlantic United States
Consumption (% growth 2002- 2020)
Electricity 2.3 2.3 2.2
Natural Gas 1.7 1.5 1.4
Petroleum 0.5 0.3 0.4
Total 1.4 1.3 1.2
Total per $ GSP - 2.6 - 2.6 - 2.1
Retail Prices, Nominal (% growth 2002- 2020)
Electricity 0.9 1.5 1.0
Natural Gas 2.6 2.6 2.7
Coal 2.0 2.1 1.6
Distillate Fuel 3.3 3.3 3.3
Residual Fuel 2.8 2.8 2.8
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Global Insight, Inc., 2003, Page 39
Transportation Sector
The consumption of energy in the transportation sector can be divided into two
categories: on- road and off- road. From 2002 to 2020, on- road energy
consumption is forecasted to grow at a 2.4% annual rate in the state of North
Carolina. In the United States as a whole, on- highway gasoline demand is
projected to grow at a 1.7% annual rate between 2002 and 2020. In North
Caroline, off- road demand is expected to grow at a 3.1% annual rate, while it will
grow 2.6% nationally.
Transportation Sector
North Carolina* United States*
Consumption (% growth 2002- 2020)
VMT 2.2 1.9
On- road: Gasoline 1.7 1.6
On- road: Diesel 4.0 1.5
Total On- road 2.2 1.6
Total Off- road 3.1 2.6
Total Sector 2.3 1.8
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Electric Power Sector
Fuel consumption by power generators will grow faster in North Carolina than in
the South Atlantic region and the U. S. Fuel prices in North Carolina will track
prices in other regions.
Fuel Consumption and Prices to Power Generators
North Carolina South Atlantic* United States*
Consumption (% growth 2002- 2020)
Natural Gas 9.8 5.5 2.9
Petroleum 2.0 - 0.4 0.8
Coal 2.8 1.6 1.2
Nuclear 0.3 - 0.1 - 0.7
Hydro 0.0 - 0.7 0.2
Total 2.1 1.6 1.1
Total per $ GSP - 1.9 - 2.3 - 2.1
Retail Prices, Nominal (% growth 2002- 2020)
Natural Gas 2.8 2.8 3.1
Distillate Fuel 3.2 3.2 3.2
Residual Fuel 5.8 2.6 2.6
Coal 1.9 1.9 1.5
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Global Insight, Inc., 2003, Page 40
Global Insight, Inc., 2003, Page 41
CHAPTER 6: STATE ENERGY PLAN AND THE POTENTIAL FOR
ALTERNATIVE ENERGY RESOURCES AND CONSERVATION TO
LIMIT EXPENDITURES ON ENERGY
Energy Plan Objectives
The purpose of the State Energy Plan is to set forth recommendations for policies
and programs related to energy. Currently, the state of North Carolina imports an
extremely high percentage of its fuel sources which places a substantial strain on
the state’s economy. In addition, the state’s natural landscape is adversely
affected by acid rain and other forms of pollution that result from its current
generation sources.
In order to achieve the above- stated goal, the State Energy Plan has six major
objectives:
1. Ensure Energy Reliability for Citizens of North Carolina
2. Improve Environmental Quality and Public Health in North Carolina
3. Develop Policies that Promote Wise Land Use
4. Implement Strategies Supportive of a Sound North Carolina Economy
5. Develop an Achievable Energy Strategy for North Carolina
6. Implement a Strategy by which the State Can Lead by Example
The objectives of the State Energy Plan are described in more detail in the table
on the next page.
Global Insight’s Analysis and
Recommendations
The State Energy Plan advances numerous policy initiatives. It is a fair
assumption that there will not be sufficient funding to implement all of these
initiatives. Therefore, these initiatives need to be carefully evaluated and
prioritized. This section will present Global Insight’s assessment of the impact
these initiatives will have on North Carolina’s energy outlook and our
recommendation and rationale for their prioritization.
Global Insight, Inc., 2003, Page 42
Summary of State Energy Plan
Ensure Energy Reliability for Citizens of North Carolina
• The state’s energy supply system must be designed so as to be able to withstand natural and man- made disasters.
• Careful preparation must be made to address security threats, with particular attention directed at nuclear facilities.
• There must be a diverse electricity supply that will allow the state to alternate among multiple energy sources as the need arises.
• The energy infrastructure must be maintained, and if necessary, expanded. This means that the electricity transmission and
distribution systems and natural gas pipelines must be kept in a state that will allow the free flow of energy when needed.
Improve Environmental Quality and Public Health in North Carolina
• Significant improvements need to be made in reducing air pollution from electric generating plants and in controlling acid rain
that contaminates rivers and streams.
• It is critically necessary to decrease the use of fossil fuels as an energy source as they lead to the emissions of greenhouse gases
such as carbon dioxide and methane and ultimately global change.
• Air pollution must be reduced so as to curb the rise in respiratory disease in the state. Asthma and bronchitis are the most
prevalent childhood diseases in the state.
Develop Policies that Promote Wise Land Use
• Inefficient commuter patterns lead to unnecessary fossil fuel use in the transportation sector and a reduction in job productivity.
Better urban planning is essential to effectively address this issue.
• Downtown areas of cities and small municipalities need to be strengthened in order to attract residents and businesses. This can
be accomplished by the expansion of mass transit facilities.
• Tree and vegetative population must be preserved so as to reduce greenhouse gas emissions by absorbing carbon dioxide. This
means that urban development must be carefully monitored and controlled.
• The use of agricultural crops and waste products for fuel would greatly bolster the ailing tobacco and hog industry by increasing
the demand for their products.
Implement Strategies Supportive of a Sound North Carolina Economy
• A diverse and competitive energy industry is an essential underpinning for a vibrant North Carolina economy. Programs to
promote diversity and competition are necessary to accomplish this.
• Energy efficiency measures and development of energy resources within the state including biomass, hydropower, wind, waste-derived
fuels, solar energy, and other statewide energy resources will increase North Carolina’s energy independence and allow
energy dollars to stay within the North Carolina economy.
• Energy- related industries are an important source of employment. The state should promote the development of energy- related
industries so as to create employment opportunities for North Carolina citizens.
• Energy costs are a significant cost to many businesses. A reliable and competitively priced electricity supply is necessary to foster
the development and expansion of businesses in North Carolina.
• Lower prices can be achieved by giving North Carolina energy consumers expanded choice in their electricity purchase decision.
Retail choice must become a prominent part of the energy equation.
• One of the hallmarks of a sound economy is that low- income households participate in the economic benefits. This requires that
energy costs are not prohibitive for low- income families. Weatherization, high performance new affordable housing, and low-income
energy assistance programs must be instituted to aid low- income families.
Develop an Achievable Energy Strategy for North Carolina
• The State Energy Plan must be dynamic. It cannot be developed just once and left unchanged. It needs to be constantly
monitored, tracked, and changed frequently.
• There needs to be careful coordination between the different agencies of state government to be sure that program redundancies
are minimized and effective complementary measures are undertaken.
• Sustainable energy technologies are a key ingredient of the State Energy Plan. The most promising technologies need to be
identified and promoted.
Implement a Strategy by which the State Can Lead by Example
• State- owned buildings should exemplify energy efficiency and renewable technologies.
• Financing options should be pursued in the public sector such as performance contracting.
• The state should take a lead role in promoting high efficiency and clean alternative fuels in state- owned vehicles.
• North Carolina schools should be teaching tools for energy efficient technologies and school buildings should be facilities and
house systems that provide energy directly, such as renewable technologies and fuel cells. School curricula should emphasize the
important role that energy plays in the economy.
Source: Energy Policy Working Group Energy Plan ( http:// www. ncenergy. appstate. edu)
Global Insight, Inc., 2003, Page 43
Public Sector
In Global Insight's view, the following initiatives show the greatest promise for
energy savings in the public sector:
• Implement High Performance Building Guidelines developed for North
Carolina in all new public housing and public buildings.
• Reduce energy use in existing public buildings to save a recurring $ 7
million per year or more. By 2005, reduce energy use in existing public
buildings by 20%.
• Develop performance contracting procedures and other ways to finance
energy efficiency projects for state and local governments, university and
public school systems, and public housing. Provide technical support to
implement performance- contracting projects and provide quality
assurance.
• Require a 20% reduction in petroleum use by state government fleets by
December 2006.
• Develop a financial incentive program for highly efficient vehicles, such
as a $ 250 to $ 500 payment per new vehicle in government fleets that
improve efficiency over 20% per vehicle.
• Require that public buildings purchase a minimum percentage, such as
10%, of their electricity needs from renewable energy sources, through
participation in the NC GreenPower program. Public buildings should
also generate renewable electricity for their own use and provide
renewable electricity as a source of power for the NC GreenPower
program.
North Carolina's Public Sector energy expenditures were estimated to be more
than $ 500 million in FY 2000- 2001. Approximately 88% of this is attributable to
energy consumption in public buildings. The remainder is attributable to
transportation consumption. Electricity consumption in the public sector rose
almost 7% from FY 1997- 1999. To reduce this growth rate, the components of
public sector energy consumption must be carefully analyzed. Heating and
cooling account for a large percentage of the energy use in public buildings.
Improving public building design standards and initiating performance contracting
will be very cost- effective energy efficiency measures. The state of North
Carolina is currently using high performance building guidelines at the Triangle J
Council of Governments. The High Performance Guidelines: Triangle Region
Public Facilities Program builds upon past successes in identifying ways to
increase energy efficiency in public buildings in the Triangle region. Efforts such
as the Wake County Guidelines for Design and Construction of Energy Efficient
County Facilities illustrate a history of Triangle involvement in keeping
Global Insight, Inc., 2003, Page 44
architects, engineers, and facility managers abreast of the latest standards for
achieving high performance, cost effective buildings. Also, developing financial
incentives for highly efficient vehicles and targets for alternative fueled vehicles
should be vigorously pursued.
On the supply side, the public sector can contribute to the development of
renewable energy sources. Requiring a minimum of 10% of the energy used in the
public sector be purchased from renewable sources by 2006 will be significant in
allowing the state of North Carolina to become more energy independent. Such a
statutory requirement is currently being considered in Massachusetts.
The public sector is a fairly significant contributor to commercial energy
consumption in North Carolina. Therefore, reducing public sector energy use can
make a meaningful contribution to reducing commercial energy consumption in
North Carolina. The current version of the Energy Plan assumes that energy
consumption in public buildings can be reduced by an average of 4% per year in
the foreseeable future. This is an aggressive goal and it is unlikely that it can be
achieved.
Global Insight believes that in the absence of these initiatives, commercial sector
energy consumption is expected to grow on average by 1.6% per year between
2000 and 2020. Based upon experience with aggressive building design and
performance contracting in Massachusetts, commercial energy consumption
could be reduced to the 1.1% to the 1.3% per year range if all measures were
fully funded. This was the experience in Massachusetts in the late 1990s.
Residential Sector
The Energy Policy Working Group feels that substantial energy savings are
available in North Carolina’s residential buildings. In Global Insight's view, the
following initiatives show the greatest promise for energy savings in the
residential sector:
• Assess recently completed residential buildings for energy code
compliance, as well as other energy- related characteristics. Make
recommendations for energy code changes that are cost effective in terms
of energy savings versus installed costs. Determine improvements in the
energy code inspection process that are needed to achieve improved
compliance.
• Develop standards and publicity campaigns for a statewide Energy Star
program. Provide incentives such as tax credits or direct payments for
new residential or commercial buildings.
• Develop a North Carolina Energy Star program to improve the
efficiency of affordable housing built in the state. Provide targeted
training, technical assistance, and financial assistance to achieve
Global Insight, Inc., 2003, Page 45
maximum market penetration of Energy Star buildings for affordable
housing.
• Establish minimum efficiency guidelines for manufactured housing sold
in North Carolina. Provide incentives, such as tax credits or direct
payments, for Energy Star manufactured homes.
• Develop a program to increase the efficiency of existing residential
buildings, such as energy audits tied to tax credits or direct incentive
payments.
• Strengthen the Low Income Weatherization program to optimize the
energy efficiency work being performed in the field. Assess the
practicality of establishing a goal to weatherize all low- income homes
and residential units by 2015.
In 2001, the residential sector accounted for 17% of North Carolina’s energy
consumption. Electricity accounted for 55% of the energy usage while natural gas
accounted for 20%. Residential energy end use in North Carolina in 2001 can be
described as follows:
• Lighting- 24%
• Water Heating- 24%
• Space Cooling- 22%
• Space Heating- 23%
• Appliances- 7%
As one can see, residential energy use in North Carolina is distributed
predominantly across lighting, heating, and cooling end- uses. Therefore,
initiatives that address these specific end uses will be most effective. Enforcing
more rigidly and expanding energy code compliance will be very effective in
reducing residential sector energy consumption. Also, promoting energy audits
through tax credits and direct incentive payments will have a significant impact.
The energy audit program currently in effect in Massachusetts has been very
successful in reducing residential energy consumption in Massachusetts.
A lighting rebate program needs to be an essential part of the residential sector in
the Energy plan. The rebates should be offered for both energy efficient fixtures
and bulbs. The rebates for fixtures should be more generous than those for bulbs
as once the fixtures are in place, the market will be driven to purchase more
effective bulbs. Residential lighting programs in Massachusetts have been very
instrumental in reducing lighting consumption. Penetration rate studies and
Delphi surveys should be conducted in North Carolina to evaluate the potential
effectiveness of lighting rebate programs.
Participation in the various ENERGY STAR programs is another fruitful way of
reducing residential energy consumption in North Carolina. There are three major
Global Insight, Inc., 2003, Page 46
ENERGY STAR Programs: ENERGY STAR Products, ENERGY STAR
Homes, and ENERGY STAR Buildings.
ENERGY STAR Products
The ENERGY STAR Products program makes it easy for consumers to identify
high quality, energy- efficient products for their homes and offices. Under the
program, almost 7,000 individual product models in 31 consumer product
categories are ENERGY STAR qualified. The following table shows the energy
saved and emissions prevented for various product categories.
Energy Star Products 1999 Achievements
Product Energy Saved
( billions kWh)
Emissions Prevented
( MMTCE)*
Computers 2.7 0.5
Monitors 12.5 2.5
Printers 4.2 0.9
Copiers 0.9 0.2
Other Office Products 3.6 0.6
Exit Signs 2.2 0.4
Residential Fixtures 2.0 0.4
Home Electronics 0.9 0.2
Other Products 0.2 0.1
Total 29.2 5.8
* Million Metric Tons Carbon Equivalent Per Year
Source: http:// www. energystar. gov
• As of the end of 2000, more than 630 million products with the
ENERGY STAR label were purchased.
• By choosing ENERGY STAR, consumers can save 30% on their energy
bills - about $ 400 per year - and protect the environment for future
generations.
• In 2000, Americans saved more than $ 5 billion on energy bills.
• In 2001, the ENERGY STAR label was extended to supermarkets and
grocery stores that perform in the top 25% of the market.
• In 2001, ENERGY STAR for set- top boxes and residential dehumidifiers
were introduced.
ENERGY STAR Homes
New homes that bear the ENERGY STAR label incorporate features such as
improved insulation, tightly sealed construction, sealed ducts, high- performance
Global Insight, Inc., 2003, Page 47
windows, and high- efficiency heating and cooling equipment. These homes are
generally 30% more energy efficient than the Model Energy Code. According to
the ENERGY STAR website ( http:// www. energystar. gov), the major
accomplishments of the Program in recent years include:
• In 1999, over 8,000 new homes qualified as ENERGY STAR. This was
an increase of more than 50% over 1998.
• ENERGY STAR labeled homes have averaged over 35% in energy- use
reductions.
• In 1999, the threshold of 1,000 building partners was crossed.
• In 1999, more than 800 industry allies, including approximately 40
utilities, signed agreements to promote ENERGY STAR Homes.
• In 1999, the manufactured housing sector, representing about 30% of all
new housing, began participating in the program.
• In 1999, energy savings were sufficient to power ten million homes and
reduce air pollution equivalent to taking ten million cars off the road.
• In 2000, ENERGY STAR begins to offer the Home Improvement
Toolbox to make it easy for homeowners to incorporate ENERGY STAR
into their home improvement or repair projects.
ENERGY STAR Buildings
ENERGY STAR Buildings collaborates with a wide range of building owners
and users - retailers, healthcare organizations, real estate investors, state and local
governments, schools and universities, and small businesses. Each partner
commits to improving the energy performance of its organization and uses the
performance metrics and tools provided by ENERGY STAR to achieve
significant savings in both dollars and air pollution. According to the ENERGY
STAR website, recent accomplishments include:
• More than 7,000 private and public sector organizations have partnered
with EPA to improve their energy performance representing more than
600 buildings or 17% of the total commercial, public, and industrial
building market.
• Partners have saved more than 22 billion kWh of energy, reduced energy
bills by at least $ 1.6 billion, and prevented emissions of at least 4.5
MMTCE.
Global Insight, Inc., 2003, Page 48
• Cumulative investments in energy- efficient technologies have totaled
more than $ 3.6 billion.
• Over 1.6 billion square feet of investor- owned office properties have
joined ENERGY STAR, representing over 70% of the office properties
market.
• By choosing ENERGY STAR, businesses and organizations could save
more than $ 25 billion per year on their energy bills and protect the
environment for future generations.
• Installing ENERGY STAR labeled computers, monitors, fax machines,
copiers, or printers saves approximately $ 80 per product per year, and
prevents pollution.
The low- income weatherization program is another effective way of reducing
residential sector energy consumption. In addition to reducing energy use, it also
provides financial assistance to low- income families. This program has been
highly effective in reducing energy consumption for low- income families in
Massachusetts.
Global Insight believes that in the absence of the initiatives discussed above,
energy consumption per person in the residential sector is expected to grow on
average by 0.6% per year between 2000 and 2020. Based upon experience with
similar programs in Massachusetts, energy consumption per person in the
residential sector could be reduced to the 0.2% to the 0.4% per year range if the
above recommendations are fully funded. This was the experience in
Massachusetts in the late 1990s.
Commercial Sector
The Energy Policy Working Group feels that substantial energy savings are
available in North Carolina’s commercial buildings. In Global Insight's view, the
following initiatives show the greatest promise for energy savings in the
commercial sector:
• Assess recently completed commercial buildings for energy code
compliance, as well as other energy- related characteristics. Make
recommendations for energy code changes that are cost effective in terms
of energy savings versus installed costs. Determine improvements in the
energy code inspection process that are needed to achieve improved
compliance.
• Provide incentives such as tax credits or direct payments for new or
existing commercial buildings.
• Develop a program to increase the efficiency of existing commercial
buildings, such as energy audits tied to tax credits or direct incentive
payments.
Global Insight, Inc., 2003, Page 49
• Promote and develop guidelines for successful performance contracts,
and conduct workshops and provide technical assistance on developing
performance- contracting documents.
• Develop commercial building energy analysis software to assist building
owners with evaluating the best energy efficiency measures.
The commercial sector accounted for approximately 12% of energy use in North
Carolina in 2001. The distribution of energy sources is as follows:
Electricity- 67% totaling 138 Trillion Btu
Natural Gas- 19% totaling 40 Trillion Btu
Propane- 2%, totaling 4 Trillion Btu
Other Petroleum- 10% totaling 21Trillion Btu
Coal and Renewables ( primarily wood) each provide approximately
1%, with each totaling 2 Trillion Btu.
From an electricity consumption standpoint, the most intensive end uses are
lighting at 100%, space cooling at 99%, and water heating at 73%. Therefore,
many of the initiatives proposed for the residential sector are also proposed here.
With respect to lighting, enforcement and expansion of energy code compliance
standards should be aggressively pursued. Currently, problems exist with
stringent energy code enforcement. City and county code enforcement agencies
assign health, safety, and other aspects of buildings a higher priority than energy
efficiency. Also, the energy code is more complex than most other codes. Thus,
code enforcement officials have too little, time, training, and priority to enforce
the energy code fully. Instead, they often rely on the building’s engineering
design team to ensure compliance.
Also, granting of tax credits for installation of efficient fixtures and bulbs is
necessary. The rebates should be offered for both energy efficient fixtures and
bulbs. The rebates for fixtures should be more generous than those for bulbs as
once the fixtures are in place, the market will be driven to purchase more efficient
bulbs.
The above initiatives offer substantial potential for energy savings. Commercial
lighting programs in Massachusetts have been very instrumental in reducing
lighting consumption. Penetration rate studies and Delphi surveys should be
conducted in North Carolina to evaluate the potential effectiveness of lighting
rebate programs.
Space cooling and water heating initiatives should be promoted through
performance contracting. Commercial building owners are, in general, very savvy
with regard to energy efficiency investments and will be quite responsive to
performance contracting arrangements. This has been the case in Massachusetts,
Connecticut, and New York.
Global Insight, Inc., 2003, Page 50
Many commercial buildings have energy managers. These managers are very
knowledgeable with regard to energy saving technologies and are generally quite
amenable to energy audits and the use of energy analysis software. Depending
upon their level of expertise, energy managers will either utilize the software
themselves, or obtain the services of a contractor to perform the analysis for them.
In either case, audits and the use of energy analysis software are a very effective
way of motivating building owners to undertake energy saving measures.
Global Insight believes that in the absence of the initiatives discussed above,
commercial sector energy consumption is expected to grow on average by 1.6%
per year between 2000 and 2020. Based upon experience with these programs in
Massachusetts, commercial energy consumption could be reduced to the 1.2% to
the 1.4% per year range if the above- recommended initiatives are fully funded.
This was the experience in Massachusetts in the late 1990s.
Industrial Sector
North Carolina’s industrial sector uses more energy than any sector other than
transportation sector. The development of policies that support industrial energy
use efficiency is a crucial component of retaining a strong manufacturing
economy and will directly support the goals of the State Energy Plan. In Global
Insight's view, the following initiatives show the greatest promise for energy
savings in the industrial sector:
• Develop incentives, such as tax credits or direct payments, for energy
efficiency measures in new or existing industrial facilities, such as
upgrading to higher efficiency motors; installing higher efficiency
lighting, hot water, heating, cooling, and ventilation systems; and
improving industrial processes.
• Expand the Industrial Extension Service ( IES), Industrial Assessment
Center ( IAC), and related industrial energy outreach, training, and
technical assistance activities. Increase funding to assist industries
through the procurement process for installing energy measures when
indicated by an energy audit.
• Promote and develop guidelines for successful performance contracts,
and conduct workshops and provide technical assistance on developing
performance- contracting documents.
• Assess recently completed industrial buildings for energy code
compliance, as well as other energy- related characteristics. Make
recommendations for energy code changes that are cost effective in terms
of energy savings versus installed costs. Determine improvements in the
energy code inspection process that are needed to achieve improved
compliance.
Global Insight, Inc., 2003, Page 51
• Provide incentives, such as tax credits or direct payments, for the
implementation of energy efficiency measures in new or existing
industrial facilities.
• Develop a program to increase the efficiency of existing industrial
facilities, through energy audits tied to tax credits or direct incentive
payments.
• Encourage the use of industrial building energy analysis software to
assist industrial facility owners with evaluating the best energy efficiency
measures. Depending upon their level of expertise, energy managers will
either utilize the software themselves or obtain the services of a
contractor to perform the analysis for them. In either case, audits and the
use of energy analysis software are a very effective way of motivating
building owners to undertake energy saving measures.
In 2001, the industrial sector in North Carolina was estimated to consume
approximately 427 trillion Btu’s per year, or 27% of the total energy used in the
state. The distribution of energy sources is as follows:
Electricity- 22%
Natural Gas- 22%
Petroleum- 35%
Wood and Waste- 11%
Coal- 8%
Hydroelectric- 2%
In terms of the percentage of industrial consumption by end- use in the Southern
region of the United States, the two major end- uses are Process Heat at 24% and
Boiler Fuel at 22%.
The potential for energy saving improvements in the industry sector falls into four
primary categories:
1. General Energy- Saving Technologies. These are technologies that are
applicable to all manufacturing sectors. Examples are high efficiency
lighting and computer control of air conditioning.
2. Industry specific Energy- Saving Technologies.
3. Energy Management Activities. Examples are energy audits, load
control, and a full- time energy manager.
4. Other Innovative Approaches: changing processes or increasing worker
productivity
The most promising area in the commercial and industrial sectors to promote
energy efficiency is in renewable energy. Many states have adopted industrial
programs and policies to encourage the development of renewable energy sources
Global Insight, Inc., 2003, Page 52
by providing incentives to manufacturers. Most states offer numerous financial
incentives for the development of renewable energy sources. These incentives
fall into the following categories:
• Personal Tax
• Corporate Tax
• Sales Tax
• Property tax
• Rebates
• Grants
• Loans
• Production Incentives
The states of New York, Massachusetts, Oregon, California, and Ohio offer
numerous financial incentives for the development of renewable energy resources.
A description of major programs in each of these states is presented below. 1
New York
♦ Energy $ mart New Construction Program
The New York State Energy Research and Development Authority
( NYSERDA) provides incentives of up to $ 300,000 per project for the design
and installation of building- integrated photovoltaics ( BIPV), and up to
$ 100,000 per project for the design and installation of advanced solar and
daylighting technologies. Incentives are capped at 70% of the incremental
cost of the design and installation of eligible measures for advanced solar and
daylighting technologies and the lesser of $ 5 per watt ac or 70% of the
incremental cost of BIPV. The program is scheduled to end on 12/ 31/ 03.
Upon program evaluation, a decision will be made as to whether or not to
continue the program.
♦ Green Building Tax Credit Program
In 2000, New York State passed an innovative Green Building Tax Credit
for business and personal income taxpayers. Part II of Chapter 63 of the
Laws of 2000 provides for tax credits to owners and tenants of eligible
buildings and tenant spaces that meet certain “ green standards”. These
standards increase energy efficiency, improve indoor air quality, and
reduce the environmental impacts of large commercial and industrial
buildings in New York State.
1 Database of State Incentives for Renewable Energy ( http:// www. dsireusa. org)
Global Insight, Inc., 2003, Page 53
The total credit amount allocated by the legislature is $ 25 million to be
distributed between 2001 and 2009. Owners and tenants must work
through an architect or engineer who will help obtain a credit certificate
from the state for their project. The credits are distributed over a five-year
period with any unredeemed portion able to be carried forward
indefinitely or transferred to a new owner or tenant. Initial credit
certificates will be issued between 2000 and 2004.
Projects can qualify for credits under six different program components:
1) Whole Building Credit ( owner or tenant) where base building and all
tenant spaces are green

North Carolina Energy Outlook 2003
Final Report
Prepared for:
State Energy Office
North Carolina Department of Administration
Prepared by:
Global Insight ( USA), Inc.
24 Hartwell Avenue
Lexington, MA 02421- 3158
May 2003
Global Insight, Inc., 2003
CONTRIBUTORS
Robert Cuomo, PhD Margaret Rhodes
Principal, Energy Consulting Senior Economist, Energy Consulting
( 781) 860- 6739 ( 781) 860- 6650
Fax: ( 781) 860- 6807 Fax: ( 781) 860- 6332
Mary Novak Hongyan Lin
Managing Director, Energy Consulting Economist, Energy Service
( 781) 860- 6057 ( 781) 860- 6454
Fax: ( 781) 860- 6332 Fax: ( 781) 860- 6332
Global Insight, Inc., 2003
TABLE OF CONTENTS
EXECUTIVE SUMMARY.................................................................................................... 1
THE OUTLOOK FOR ENERGY CONSUMPTION IN NORTH CAROLINA .................................... 1
RECOMMENDED POLICY ACTIONS........................................................................................ 4
CHAPTER 1: INTRODUCTION......................................................................................... 7
CHAPTER 2: ECONOMIC OUTLOOK FOR NORTH CAROLINA......................... 9
OVERVIEW....................................................................................................................... ..... 9
OUTLOOK FOR KEY NORTH CAROLINA INDUSTRIES.......................................................... 10
Finance and Insurance .................................................................................................. 10
High Tech........................................................................................................................ 11
Manufacturing................................................................................................................ 12
CHAPTER 3: THE OUTLOOK FOR NORTH CAROLINA’S FUEL AND
ELECTRICITY PRICES..................................................................................................... 15
OVERVIEW....................................................................................................................... ... 15
OUTLOOK FOR CRUDE OIL .................................................................................................. 16
North Carolina’s Petroleum Product Prices ................................................................ 17
NATURAL GAS ..................................................................................................................... 19
North Carolina’s Natural Gas Prices ........................................................................... 21
COAL ............................................................................................................................... .... 22
Coal Prices in North Carolina....................................................................................... 25
ELECTRICITY PRICE ............................................................................................................. 25
North Carolina’s Electricity Price Outlook.................................................................. 26
CHAPTER 4: ENERGY CONSUMPTION IN NORTH CAROLINA....................... 29
RESIDENTIAL.................................................................................................................... ... 29
COMMERCIAL..................................................................................................................... . 30
INDUSTRY EXCLUDING AGRICULTURE ............................................................................... 32
AGRICULTURE.................................................................................................................... . 33
TRANSPORTATION................................................................................................................ 33
POWER GENERATION........................................................................................................... 34
EMISSIONS...................................................................................................................... ..... 35
CHAPTER 5: COMPARISON OF NORTH CAROLINA ENERGY PRICE,
CONSUMPTION, EXPENDITURES................................................................................ 37
RESIDENTIAL SECTOR.......................................................................................................... 37
COMMERCIAL SECTOR......................................................................................................... 37
INDUSTRIAL SECTOR............................................................................................................ 38
TRANSPORTATION SECTOR.................................................................................................. 39
ELECTRIC POWER SECTOR .................................................................................................. 39
Global Insight, Inc., 2003
CHAPTER 6: STATE ENERGY PLAN AND THE POTENTIAL FOR
ALTERNATIVE ENERGY RESOURCES AND CONSERVATION TO LIMIT
EXPENDITURES ON ENERGY ....................................................................................... 41
ENERGY PLAN OBJECTIVES................................................................................................. 41
GLOBAL INSIGHT’S ANALYSIS AND RECOMMENDATIONS.................................................. 41
Ensure Energy Reliability for Citizens of North Carolina ........................................... 42
Improve Environmental Quality and Public Health in North Carolina...................... 42
Develop Policies that Promote Wise Land Use............................................................ 42
Implement Strategies Supportive of a Sound North Carolina Economy..................... 42
Develop an Achievable Energy Strategy for North Carolina ...................................... 42
Implement a Strategy by which the State Can Lead by Example ................................ 42
Public Sector................................................................................................................... 43
Residential Sector........................................................................................................... 44
ENERGY STAR Products....................................................................................................... 46
ENERGY STAR Homes.......................................................................................................... 46
ENERGY STAR Buildings...................................................................................................... 47
Commercial Sector......................................................................................................... 48
Industrial Sector ............................................................................................................. 50
Transportation Sector .................................................................................................... 59
Renewable Energy Sources............................................................................................ 62
Net Metering................................................................................................................... 64
Green Power Pricing ..................................................................................................... 64
Renewable Portfolio Standard....................................................................................... 65
Education and Research ................................................................................................ 66
Other Research Efforts.............................................................................................................. 68
Demand Side Management............................................................................................ 69
Restructuring .................................................................................................................. 71
Restructuring in North Carolina............................................................................................... 72
Regional Transmission Organizations..................................................................................... 73
Public Benefits Funds .................................................................................................... 75
Power Aggregation ........................................................................................................ 87
BIBLIOGRAPHY AND DATA SOURCES ..................................................................... 89
DATA SOURCES.................................................................................................................... 89
APPENDIX: FORECAST TABLES................................................................................. 91
Global Insight, Inc., 2003, Page 1
EXECUTIVE SUMMARY
North Carolina’s economy is projected to grow rapidly over the next twenty years.
Today, North Carolinians enjoy a level of prosperity that exceeds much of the rest
of the nation. North Carolina’s economic performance is one of the reasons why
the state is attracting new residents. Another factor that has helped North
Carolina attract new industry, new residents, and vacationers is its natural beauty.
From its world renowned beaches to the Smoky Mountains, North Carolina offers
a harmonious environment.
The Economic Outlook for North Carolina
( Average Annual Growth Rates)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990- 2002 2002- 2010 2010- 2020
GSP / capita Population Real Income / capita
To ensure the continued success of North Carolina, policymakers and
stakeholders have worked together to frame an Energy Plan for the state. North
Carolina does not possess any fossil fuel resources, leaving it vulnerable to energy
price spikes. The state is also experiencing deteriorating air quality in its major
metropolitan areas and the mountainous western region due to vehicle emissions
and the burning of fossil fuels by power plants. The State Energy Plan outlines
programs and policies that would increase the efficient use of energy, improve the
state’s air quality, and help reduce its expenditures on energy.
The Outlook for Energy Consumption in
North Carolina
North Carolina has had only modest growth in its energy consumption on a per
person basis and a real decline in its use per dollar of output ( as measured by its
Gross State Product or GSP). These trends are now well established and should
be repeatable over the next twenty years if program and policies are maintained.
However, to increase the state’s reliance on renewables and substantially increase
its energy efficiency will require new policies, programs, and funding.
North Carolina’s economic
prosperity and natural
beauty are attracting new
residents.
The continued success of
the state depends on
( 1) increasing the efficient
use of energy,
( 2) improving the state’s air
quality,
( 3) limiting its expenditures
on energy.
Global Insight, Inc., 2003, Page 2
Total Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Energy Total Energy / capita Total Energy / GSP
Residential Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Res. Energy Total Res. Energy / capita
Commercial Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Com. Energy Total Com. Energy / employee
Total energy consumption in
North Carolina per capita is
projected to grow modestly
while real energy prices are
rising.
Growing population and
expanding economic output
( GSP) are the drivers of the
projected growth.
North Carolina residential
energy consumption per
capita is projected to grow
0.6% per year, slightly
slower than the national
average of 0.7%.
North Carolina commercial
energy consumption per
employee is projected to rise
very slowly as these
establishments have a
strong economic incentive to
control their energy
expenditures.
Global Insight, Inc., 2003, Page 3
Industrial Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1994 1998 2002 2006 2010 2014 2018
Total Ind. Energy Total Ind. Energy / GSP
Transportation Energy Consumption ( Indexed, 2000= 1.0)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1990 1994 1998 2002 2006 2010 2014 2018
Total Trans. Energy Total / capita Total Trans. Energy / GSP
Total Energy Consumption by Fuel ( million Btu per year)
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
1990 1994 1998 2002 2006 2010 2014 2018
Coal Oil Gas Other
North Carolina industrial
energy use per dollar of
output will continue to
decline sharply, as new
investment in less energy-intensive
industries
continues.
North Carolina transportation
energy use is projected to
increase reflecting North
Carolina’s growth in
intrastate traffic, interstate
traffic, and air traffic.
North Carolina is increasing
its reliance on natural gas
and renewables. However,
to make more significant
strides in renewable energy
consumption will require new
programs, policies, and
funding.
Global Insight, Inc., 2003, Page 4
Recommended Policy Actions
The following are Global Insight’s specific recommendations with regard to the
State Energy Plan:
Sector Recommended Actions
Residential/ Commercial • Enforcing more rigid and expanding energy code compliance will be very effective
in reducing both residential and commercial sector energy consumption.
• Promoting energy audits through tax credits and direct incentive payments will have
a significant impact on residential energy consumption.
• The state of North Carolina should participate as much as possible in the ENERGY
STAR Products, Homes, and Buildings Programs.
• Based upon experience with energy code compliance, energy audit, and Energy
Star programs in Massachusetts, energy consumption per person in the residential
sector could be reduced from a growth rate of 0.6% per year to 0.3% to 0.5% per
year if all recommended measures were fully funded.
• Based upon experience with aggressive building design and performance
contracting for public buildings in Massachusetts, commercial energy consumption
could be reduced from a growth rate of 1.6% per year to the 1.1% to 1.3% per year
range if all recommended measures were fully funded.
Commercial/ Industrial • In the commercial and industrial sectors, space cooling and water heating initiatives
should be promoted through performance contracting.
• Subsidies should be provided to commercial and industrial building owners to
conduct energy audits.
• The state of North Carolina should develop energy analysis software for commercial
and industrial building owners.
• Provide incentives such as tax credits or direct payments for the installation of
energy efficient measures in new or existing commercial and industrial buildings.
• With respect to lighting in commercial and industrial buildings, enforcement and
expansion of energy code compliance standards should be aggressively pursued.
• With regard to process heat and boiler fuel operation, industrial building owners
need to be motivated to install energy efficient equipment. This can be
accomplished by offering rebates and direct subsidies.
• Based upon experience with these programs in Massachusetts, industrial energy
consumption could be reduced from 0.6% to the 0.2% to the 0.4% per year range if
the above- mentioned initiatives are fully funded. This was the experience in
Massachusetts in the late 1990s.
Agriculture • Direct cash subsidies should be offered for the use of agricultural crops as an energy
source for renewable energy to make a meaningful contribution to energy supply.
• Because agriculture is a very important part of the North Carolina economy, it
represents a significant source of renewable energy and should be aggressively
cultivated as an energy source.
Global Insight, Inc., 2003, Page 5
Public • Improving public building design standards and initiating performance contracting
for public building energy efficiency programs designed to reduce heating and
cooling consumption will be very cost- effective energy efficiency expenditures.
• North Carolina should require a minimum of 10% of the energy used in the public
sector be purchased from renewable sources by 2010.
• Implementation of the above initiatives will allow North Carolina’s public sector to
play a key role in allowing the state to achieve greater energy independence.
Power • By 2010, 10% of electricity consumption in North Carolina should be generated by
green power. This should be accomplished by introducing an attractive green
pricing policy.
• Tax credits and direct subsidies should be offered for the development and
implementation of fuel cell projects.
• Photovoltaics as a renewable energy source should be promoted with generous tax
credits at the state level on the order of 35% should continue to be offered.
• To promote the expansion of wind power as a renewable energy source, the
restrictions imposed by the Mountain Ridge Protection Act of 1983 should be
loosened and tax credits at the state level on the order of 35% should continue to be
offered.
• Hydroelectric projects should be supported and encouraged through appropriate
financial incentives.
• North Carolina needs to develop a program or set of programs to replace the DSM
programs that have been eliminated by the IOUs. Public benefit funds and
renewable portfolio standards are examples of what other states have adopted in the
face of declining effort in DSM programs.
• A net metering standard with a maximum limit of 1% of total electricity demand
should be established.
• Power aggregation should be encouraged and facilitated by state programs which
keep all electricity customers fully informed as to potential power aggregation
opportunities.
• The impact of the above initiatives will be to increase the supply of energy in North
Carolina in an environmentally friendly manner, to reduce energy consumption,
and to promote reasonable prices.
Transportation • Developing financial incentives for highly efficient vehicles and targets for
alternative fueled vehicles should be vigorously pursued. Tax credits and direct
subsidies should be granted for the purchase of alternative fueled vehicles.
• Granting tax credits to businesses that achieve a certain level of telecommuting and
offering direct subsidies to commuters who use mass transit are promising policy
initiatives that should be implemented.
• Increasing the gasoline tax in North Carolina and promoting Smart Growth
communities will reduce the number of vehicle miles driven and reduce
transportation sector energy consumption.
• Under business as usual conditions, vehicle miles traveled are expected to increase
on average by 2.2% per year between 2000 and 2020, vehicle efficiency ( miles per
gallon) by 2.3% per year, and on- road per- person use by 0.9%. Based upon
experience with these initiatives in Massachusetts, it is Global Insight’s assessment
that if the above initiatives are funded, then the growth in vehicle miles traveled can
be reduced by 0.2% to 0.4% per year, vehicle efficiency can be improved by 0.3%
to 0.6% per year, and on- road per- person use by 0.1% to 0.3% per year
Global Insight, Inc., 2003, Page 6
Overall • A public benefits fund should be created in North Carolina through the imposition
of a non- bypassable charge on electricity entering the transmission grid.
• North Carolina should develop a Renewable Energy Standard for each sector.
• A lighting rebate program needs to be an essential part of the Energy Plan. The
rebates should be offered for both energy efficient fixtures and bulbs.
• Energy topics should be directly incorporated into the school curriculum. This is a
very cost effective way of educating the general public concerning energy awareness
and providing vocational training on new energy saving technologies and renewable
energy sources.
• For the State Energy Plan to be truly effective, it must be dynamic. This will require
continuous research, which is best achieved by the funding of specific research
programs.
• Penetration rate studies and consumer surveys should be conducted in North
Carolina to evaluate the potential effectiveness of many of its programs. The careful
monitoring of the energy savings achieved by each program is essential if the
Energy Plan is to be improved over time.
Global Insight, Inc., 2003, Page 7
CHAPTER 1: INTRODUCTION
The State Energy Office is North Carolina’s lead agency for energy programs and
serves as the official source for energy information and technical assistance for
consumers, businesses, government agencies, and policy makers. It is responsible
for administering the State Energy Program of the U. S. Department of Energy.
The State Energy Office administers programs in four primary areas:
• Energy efficiency and renewable energy for the residential, commercial,
industrial, agricultural, transportation, and power generator sectors.
• Alternative fuels and alternative fuel vehicles.
• Energy policy recommendations to the North Carolina Energy Policy Council,
North Carolina General Assembly, the Governor’s Office, and other state
agencies.
• Energy emergencies during natural disasters and supply disruptions.
Since the state does not possess any fossil fuel resources, it is vulnerable to
potential supply disruptions and energy price spikes. In addition, the state is
experiencing deteriorating air quality in its major metropolitan areas and the
mountainous western region largely due to vehicle emissions and the burning of
fossil fuels by power plants.
To address these issues, the State Energy Office has focused upon the
development of indigenous renewable energy resources ( biomass, hydro, wind,
landfill gas, and solar) and energy efficiency programs. At the present time, the
state obtains about 3% of its energy requirements from renewable resources, with
the potential to get a much larger share if these resources are aggressively
developed.
Specifically, the State Energy Office proposes the following initiatives:
• Actions to ensure that up- to- date and well- tested energy response plans are in
place in the event of supply disruptions or curtailment.
• Strong support for the development of alternative fueled vehicles to reduce
vehicle emissions and reduce reliance on overseas petroleum.
• Integration of environmental concerns with energy supply development to
ensure the improvement of air and water quality.
• Increased federal funding for low income households to weatherize their
homes.
• Increased funding of energy efficiency programs, including both
implementation programs and research and development efforts.
• Increased funding of renewable energy programs.
Global Insight, Inc., 2003, Page 8
This report provides a comprehensive assessment for the state of North Carolina
of the opportunities and constraints for all types and uses of energy by economic
sector. It provides a detailed outlook for energy, assuming a continuation of
current trends, and an assessment of the potential opportunity to improve North
Carolina’s energy outlook.
Specifically, the report addresses the following topics:
• The economic and demographic outlook for North Carolina.
• The outlook for energy availability and its impact on North Carolina energy
prices.
• The outlook for North Carolina energy consumption and expenditures.
• A comparison of North Carolina’s energy prices, consumption, and
expenditures to the South Atlantic and the U. S.
• The potential for alternative energy resources, conservation, and policies to
increase energy efficiency, improve air quality, and reduce North Carolinians
expenditures on energy.
Global Insight, Inc., 2003, Page 9
CHAPTER 2: ECONOMIC OUTLOOK FOR NORTH CAROLINA
Overview
The U. S. economic recovery is plodding along and will gather steam slowly over
2003, after growing 2.3% in 2002 – little better than half the rates achieved in the
late 1990s. Although war jitters may be having some dampening effect, the real
economy is in better shape than the behavior of financial markets indicates.
Further recovery is expected to bring real GDP growth to around 3% for 2003 as a
whole; for the full period to 2020, it is expected to average 3.2%.
North Carolina’s economy was unable to find a positive direction in 2002. Total
non- farm employment contracted 0.2% with non- manufacturing increasing 0.7%
and manufacturing declining 4.1%. The state’s textile, apparel, and furniture
manufacturing firms continued to reel due to tough trading conditions and fierce
foreign competition. In addition, layoffs in the banking sector, sparked by
mergers and rising loan write- offs, have left payrolls in the finance, insurance, and
real estate ( FIRE) sector flat through the middle of the year. The transportation,
communication, and utilities ( TCPU) and construction sectors also posted
employment declines. Weak economic conditions saw the state’s unemployment
rate ratchet up to 6.4%, compared with a rate that was below 6.0% in 2001.
North Carolina’s economy is projected to slowly recover over 2003. Total non-farm
employment, which contracted in 2002, should grow by 1.4% in 2003 as the
national recovery firmly sets in and business and consumer spending quickens.
The beleaguered manufacturing sector is the primary reason for the state
economy’s current malaise, and ongoing weakness in national and global markets,
combined with strong foreign competition, means that the sector will continue to
shed jobs. Consequently, manufacturing employment is expected to decline a
further 1.2% in 2003. In addition, employment in the FIRE sector, which fell
0.2% in 2002 as banks and financial institutions continue to shed jobs in a bid to
trim costs following a series of recent mergers and a growing number of bad
loans, should improve. North Carolina’s strong position as a regional financial
cluster will be the impetus behind renewed growth, with payrolls growing by
3.0% in 2003.
During the next couple of years, non- manufacturing will continue to be the main
engine of employment growth. Employment in this sector increased in 2002 and,
as economic activity picks up in 2003, payroll growth will ratchet up to levels
more reminiscent of the late 1990s, at around 3.5%.
Over the next five years, North Carolina’s economy will post moderate but steady
growth. Total non- farm employment is expected to increase by 1.3% annually,
with continued job losses in the manufacturing sector being counterbalanced by
Global Insight, Inc., 2003, Page 10
brisk employment growth in the services and FIRE sectors. After peaking at
slightly more than 6.5%, the state’s unemployment rate will drift back down to
around 5.3% by 2007.
Contributing to the expectations for economic growth is a new state business
incentive program that was passed by the General Assembly in 2001. The
controversial legislation gives selected companies rebates on the NC tax
withholdings for their employees. Modeled after similar programs offered in
South Carolina and other states, the program establishes a committee of five state
officials with the power to authorize rebates of as much as 75% of the state
withholdings on jobs created by new or expanding companies. The incentives
would be limited to 15 companies per year, with the state making inducement
payments to each business for up to 12 years. The total cost of the program is
capped at $ 240 million over the next 13 years.
Although the legislation has been criticized as corporate welfare by a range of
lobbying groups, Charlotte business leaders believe it will bring job growth to
their metro area. Indeed, Charlotte Chamber of Commerce officials say the state
has, for too long, seen potential new businesses walk away when other states
offered lucrative tax breaks, free land, or other enticements. They expect that the
new incentives will give Charlotte and other North Carolina cities a tangible way
of sending the message that the state wants new business.
Outlook for Key North Carolina Industries
Finance and Insurance
Over the past decade, North Carolina has emerged as one of the nation’s banking
powers. Thanks to a steady stream of mergers and acquisitions, the state now
boasts two of the four largest banks in the country–– Bank of America and
Wachovia Corporation, which are both headquartered in Charlotte. The merger
of First Union Corp. and Wachovia was official on September 1, 2001, and
created the fourth largest financial institution in the country, with 19 million
customers and $ 324 billion in assets. Along with this type of merger come the
inevitable branch closings and job reductions. Wachovia Securities announced in
December 2001 that it would cut 400 jobs in Charlotte, as it combined the
brokerage arms of the newly formed corporation. In January 2002, it was
announced that nearly 160 jobs were being cut as Wachovia’s wealth
management business moved its technical operations to Charlotte from Winston-
Salem. When the application to merge the bank charters was filed with federal
regulators, Wachovia stated that it would be closing 65 branches, 11 in North
Carolina, in the second quarter of 2003.
The recent downturn in the national economy has left some North Carolina banks
with credit quality issues needing to be addressed. In a state that is highly
dependent on manufacturing, a sector that has suffered significantly in the recent
recession, the economy will be more vulnerable even as the national recovery
Global Insight, Inc., 2003, Page 11
begins. Bank of America and other major North Carolina banks are reducing their
exposure in the textile and apparel industry, limiting it to only the strongest
performers in the industry. One factor that bodes well for North Carolina’s big
three banks, Bank of America, Wachovia, and BB& T Corp., is that they are in a
number of markets, and this geographic diversity makes the ability to weather a
downturn much better.
High Tech
The growing economic problems facing the nation's telecommunications industry
are having a direct impact on North Carolina’s high- tech industry. The issue is
particularly acute because almost 60% of the nation’s fiber- optic cables are made
in the Charlotte region, and the over- capacity built up in the late 1990s is resulting
in much lower demand for telecommunications- derived products.
Most recently, Globespan Virata, a California- based semiconductor manufacturer,
closed its operations in Raleigh, citing the struggling telecommunications
industry. North Carolina has also seen telecommunication firms, such as Hatteras
Networks and Redback Networks, reduce their presence in the state due to the
same reason. In addition, Celestica and Solectron, manufacturing spin- offs of
Cisco Systems, made significant job cuts at the end of last year, with Solectron
closing down its operation all together. Furthermore, one of the cornerstones of
the state’s high- tech industry, Cisco Systems, has put plans to expand into six new
buildings on hold. Nortel Networks, which employs 4,500 in the Raleigh area
( about 10% of the company's total workforce), announced another round of job
cuts for the end of 2002. In a sign of the problems facing the industry, office
vacancy rates in Research Triangle Park increased to 15.6% in the first quarter of
2002, up from a rate of 5.4% in the same period a year earlier.
On the positive side, the state’s biotech sector is showing signs of growth.
Diosynth, a Netherlands- based pharmaceutical company, is planning to increase
its presence in North Carolina. Already employing 600 workers at its Research
Triangle Park location, Diosynth has agreed to build a new 300,000- square- foot
manufacturing facility that will eventually lead to the addition of numerous new
jobs.
With major firms, such as Cisco Systems, in the Research Triangle Park, North
Carolina will maintain its position as a center of high- tech commerce in the years
to come. This position was recently highlighted when Hatteras Networks closed
on $ 45 million in new venture capital funding for its research on speeding up
telecommunications networks. Nevertheless, the recent news from Nortel
Networks, which has already cut 50,000 jobs in the past two years yet continues
to struggle, points to the fact that the next few years will not see a return to the
rapid employment growth that happened at the end of the last decade.
Global Insight, Inc., 2003, Page 12
Manufacturing
After a brief respite in the mid- 1990s, when North Carolina’s manufacturing firms
enjoyed a few years of growth following the 1990– 1991 recession, the state’s
manufacturing sector has again resumed its downward trend. In 1995, around
864,000 workers were employed in the manufacturing sector, representing 25% of
the state’s total non- farm employment. In the next few years, manufacturing
employment declined by an average of almost 2% per year, as growing foreign
competition and a strong dollar led to an increasing pace of job losses. As global
economic conditions worsened, manufacturing employment has plummeted, and
today it represents less than 20% of total employment.
To a large extent, the sharp decline in manufacturing during this period has been
due to a unique combination of factors in the structural make- up of the sector.
North Carolina’s manufacturing sector has a heavy reliance on the textiles
industry— which accounts for 17% of total manufacturing employment— along
with apparel, furniture, and tobacco industries. These industries, which require
access to relatively low cost, unskilled, labor, are particularly exposed to
competition from firms in locations around the globe that have a large supply of
cheap labor and do not face the same type of environmental and workers rights
laws as in the United States. In the mid- 1990s, the importance of low- cost labor
to these industries was brought home with the advent of NAFTA.
The signing of the NAFTA trade agreement opened the door for direct
competition from Mexico, where labor costs, both direct and indirect, are
considerably lower than in North Carolina. This had a direct effect on the state’s
manufacturing sector, particularly the textile and apparel industries, with
manufacturers quickly drifting south of the border on account of these cost
advantages. The change in employment in the five years following 1995
dramatically emphasizes this, with employment in the textile industry falling at an
annual rate of 6% and employment in the apparel industry collapsing by more
than 10% per year. The growing problems in the state’s textile sector have led to
three of the largest textile firms in Greensboro— Guilford Mills, Burlington
Industries, and Galey & Lord— petitioning for chapter 11 bankruptcy protection.
While all three firms are expected to be able to reorganize successfully, they will
emerge much smaller and with increased emphasis on automation, which will
mean even lower demand for labor.
The state’s timber and furniture companies have also felt the affects of growing
global competition. In particular, increasing competition from China is forcing
many Tar Heel furniture makers out of business, which is having an affect on the
state’s timber industry. North Carolina’s furniture makers are now facing
competition from Chinese manufacturers, who as recently as five years ago were
unable to match the quality of U. S.- made furniture. But the Chinese
manufacturers have bought and mastered the use of Italian and German lathing
machines and are producing top- quality furniture. On top of this, manufacturers
Global Insight, Inc., 2003, Page 13
in China have the added competitive advantage of much lower labor costs.
Furthermore, the recent advent of China entering the World Trade Organization
means that the competition for the North Carolina’s furniture makers will not
soon abate. As a result, the state’s timber industry will have to look farther afield
for new opportunities.
During the past decade, the tobacco industry has also been dealing with a number
of issues that have impacted its growth prospects. Indeed, the restrictions on
advertising, the anti- smoking campaigns by health authorities, and the
compensation paid by the industry to state governments have put a heavy burden
on the industry. The increasing cost pressure placed on tobacco companies has
resulted in employment in this sector falling by an average of 3.9% annually from
1995 through 2001.
The downturn in North Carolina’s manufacturing base has been hardest on rural
areas. In many places, the local economy is still highly dependent on a single
large employer, and thus highly vulnerable when business conditions turn sour.
This was recently demonstrated in Holly Ridge ( Onslow County), which lost 500
jobs when Tyson Foods shut down its bacon production facility in June in an
effort to reduce costs. The plant, which had been in operation for more than 30
years, employed more than 50% of the town’s population.
The outlook for the manufacturing sector remains grim. To meet ever increasing
competition from abroad, North Carolina’s manufacturers will look to niche
markets and increased automation as the only way to stay competitive. Both of
these avenues will lead to a further reduction in the amount of labor required,
resulting in more job cuts. The fact that Asia is now becoming the dominant
center for textile and apparel manufacturing is emphasized by the recent news that
Burlington Industries is reducing its workforce by 4,000, with job cuts coming not
only in the United States but also in Mexico. With global trading conditions
remaining weak, and pressure mounting for manufacturers to move to cheaper
production locations outside of the United States, it is expected that
manufacturing employment in the Tar Heel State will contract by around 1.3%
annually through 2007, falling to around 16.0% of total employment.
Global Insight, Inc., 2003, Page 14
Global Insight, Inc., 2003, Page 15
CHAPTER 3: THE OUTLOOK FOR NORTH CAROLINA’S FUEL
AND ELECTRICITY PRICES
Overview
Despite a weak economy, oil and natural gas prices rebounded in 2002, bolstered
by a combination of temporary and fundamental factors. In 2003,
• Market fundamentals will replace fear as a driver of oil prices. Abundant supply
will overmatch demand, and prices will slip slowly as the year progresses. WTI is
expected to average $ 26/ barrel in the second half of 2003.
• Natural gas storage fell to record lows by the end of the 2002- 2003 heating season,
a result of weak performance on the supply side and a cold winter in the major gas-heating
regions. Storage injection will have to compete for available gas supplies
with the rising number of gas- fired electricity generating units throughout the
United States, permitting only slow adjustment in gas prices from the dramatic
mid- winter highs. As new supplies come on line by the second half of the year,
prices should abate somewhat, though remain strong by historical levels. Demand
is likely to remain weak in gas- intensive industries.
• Spot market coal prices, which nearly doubled trough- to- peak in 2001, have now
lost much of those gains. Coal inventories appear to be heading toward normal
levels in the wake of a hot air- conditioning season and a cold heating season.
Nevertheless, coal purchasing remains constrained by a sluggish economy and
heightened competition from hydro and natural gas.
Following modest fluctuations and corrections during the next few years, oil and
gas prices are expected to follow a slow real ( inflation- adjusted) incline to 2020,
reaching levels that are roughly similar to recent prices and below previous peaks.
Rising demand will increase the call on oil and gas reserves and gradually deplete
the least costly supplies, but with steady, relatively solid prices, the necessary
supply development should take place. The risk of price volatility is ever- present,
however, in the event of unexpected demand fluctuations accompanied by less-than-
timely responses on the supply side. Coal prices are likely to decline in real
terms, as continued productivity improvements help coal suppliers compete with
natural gas in the crucial power generation market.
Short- term fluctuations aside, annual average electricity prices to end users are
expected to reflect underlying costs in the power sector, with the most prominent
impact of regulatory restructuring likely to be increased, competition- driven
pressure to contain costs. Improving efficiencies in the power sector and
declining real coal prices should produce flat to declining real end- use electricity
prices. Clearly, further changes in electricity market legislation and regulation at
the state or federal level could have significant impact on future electricity prices.
Global Insight, Inc., 2003, Page 16
At this point, however, the drive to deregulate has been stalled by the California
experience and by revelations of market manipulation by electricity suppliers in
“ open” market states.
Outlook for Crude Oil
In 2002, oil market fundamentals played only a minor role in setting crude oil
prices. The price was set largely by political events that led to increased price
volatility. It could be said that prices were driven to a great extent by fear rather
than fundamentals; the same was true for the first half of 2003, but fundamentals
should replace fear for the second half of the year.
Crude Oil and U. S. Wholesale Petroleum Product Prices
( 2001 Dollars per Barrel)
0
5
10
15
20
25
30
35
40
45
1992 1995 1998 2001 2004 2007 2010
Crude Oil Gasoline Distillate/ Diesel Residual Fuel
Oil markets entered 2003 without 2.5 million barrels per day ( b/ d) of Venezuelan
exports. The loss was brought about by a country- wide strike that ground
operations at Petroleos de Venezuela ( PDVSA) nearly to a halt. The United
States, which takes more than half of Venezuela’s exports ( they account for about
15% of all U. S. oil imports), has been hit hard by the loss of exports, particularly
since U. S. oil inventories were already low. The strike lasted through February,
but resolution of the strike has not meant an instant return to full production
( about 3 million b/ d) for PDVSA. By April, production reached approximately
2.6 million b/ d, and it is believed that it will take until 2004 for production to
return to pre- strike levels. Thus, despite a surge in production from the rest of
OPEC in the first quarter of 2003, markets are lean enough to keep prices at
relatively high levels for much of the year.
Another factor that will keep markets lean is that Iraqi production has been halted
because of the war between Iraq and coalition forces. Iraq was exporting 2.0- 2.5
million b/ d of oil prior to the war, but a resumption of exports is not likely until
July at the earliest, and even then at small volumes. Iraqi exports are not expected
Global Insight, Inc., 2003, Page 17
to surpass 2 million b/ d this year, given the damage done to oil facilities ( by
looting, not war) and the neglect of those same facilities over the past 12 years.
In the aftermath of war, OPEC has been concerned about oversupply as
Venezuelan and possibly Iraqi production ramps up, while the rest of the cartel is
potentially producing at close to capacity. Global demand growth is slated to
increase by less than 1 million b/ d in 2003, growth that will be met by the
expected increases in non- OPEC production. Therefore, OPEC will need to rein
in production or risk a severe price drop. Given OPEC’s penchant for prices in
the mid to upper $ 20s, we believe that the cartel will curtail its output to keep
prices supported. The high price environment seen over the past several years,
however, has encouraged non- OPEC production expansion to the point that the
increases in non- OPEC production should meet most, if not all, of the expected
increases in global demand in 2003 and 2004, thus exerting relentless downward
price pressure that should result in lower prices in 2004.
In the long- term, real crude prices are expected to rise gradually, increasing less
than 1% per year. The long- term forecast is dependent on steadily increasing
global demand as a result of economic expansion, coupled with coordinated
action from OPEC that keeps oil markets adequately, but not over, supplied.
Prices for the refiners’ acquisition cost of foreign crude oil are not seen falling
back to 1998 levels over the forecast interval. Nevertheless, they are expected to
fall to levels lower than what has been seen in recent years, hovering around $ 21-
23/ barrel in real terms through 2012. Price growth accelerates slightly thereafter,
and by 2020, crude prices are expected to reach around $ 25/ barrel, measured in
constant 2001 dollars, the equivalent of around $ 40/ barrel in nominal terms.
North Carolina’s Petroleum Product Prices
North Carolina’s petroleum product prices reflect the international price of crude
oil and the traded price of petroleum products in the Atlantic market. In 2002,
North Carolina’s price for home heating oil ( distillate fuel) was $ 1.23 per gallon,
while the residential price of propane was $ 1.93 per gallon. Both prices are
projected to track crude oil prices through 2020. Industrial distillate and residual
fuel prices have been very high lately reflecting the vagaries of the crude oil
market.
Global Insight, Inc., 2003, Page 18
U. S. Wholesale Residual Fuel Price and North Carolina’s Delivered
Price of Residual Fuel by Sector ( 2001 Cents per Gallon)
0
10
20
30
40
50
60
70
1992 1995 1998 2001 2004 2007 2010
Wholesale Residual Fuel Commercial Industrial Pow er
Retail motor gasoline will end the forecast essentially flat in real terms. In 2002,
both wholesale and retail gasoline prices rose again, and are projected to decline
when crude oil prices weaken. Real declines in federal, state, and local taxes will
result in retail motor gasoline prices remaining essentially flat through the latter
half of the forecast.
U. S. Wholesale Gasoline Price and North Carolina’s Pump Price of
Gasoline ( 2001 Cents per Gallon)
0
20
40
60
80
100
120
140
160
1992 1995 1998 2001 2004 2007 2010
Wholesale Gasoline Pump
Distillate fuel prices in the electric power sector will rise faster than either natural
gas or coal. Electric power sector distillate prices hovered near $ 5.11 per mmBtu
in 2002. Longer term, distillate fuel oil prices will track the change in crude oil
prices, reaching $ 6.06 per mmBtu in 2010.
Global Insight, Inc., 2003, Page 19
U. S. Wholesale Distillate Price and North Carolina’s Delivered Price of
Distillate Fuel by Sector ( 2001 Cents per Gallon)
0
20
40
60
80
100
120
140
160
1992 1995 1998 2001 2004 2007 2010
Wholesale Distillate Residential Commercial
Industrial Pow er
Natural Gas
Natural gas prices rose sharply in late 2002 as weather- driven demand sky-rocketed,
and are projected to remain high through 2003 driven by economic
recovery and declines in productive capacity. The gas rig count dropped sharply
in 2002 because of low prices and has not recovered even though prices exceeded
$ 5/ mmBtu during the winter. Consequently, natural gas productive capacity is
likely to decline during 2003, while natural gas consumption will increase as the
U. S. economy recovers.
A key issue is the cost of developing and producing incremental gas supplies. At
present, 85% of U. S. gas is from the Lower 48 states— down from 97% in 1986.
Increasing production in the Lower 48 should be the most immediate source of
new supply, but until recently, these production levels have been stagnant. Even
after the gas rig count increased 46% in 2000 and 37% 2001, natural gas
production increased only some 2% per year. Thus the outlook for supply growth
is muted, and demand growth, also expected to be around 2% per year, will have
to be met with increased imports or unconventional sources such as the deep
water, coalbed methane, liquefied natural gas ( LNG), deep drilling, Mackenzie
Delta, and Alaska. There is substantial uncertainty about what these supplies will
cost. The supply cost for the largest incremental supplies of natural gas available
to the United States is expected to exceed $ 3 per million Btu.
Economic expansion, albeit slow, will increase requirements for natural gas in
2003 and beyond. Will supplies be available? At what price? Despite recent high
prices, expenditures on exploration and production ( E& P) are not rising. U. S.
expenditures are expected to decrease by 0.7%, while estimates of finding costs
are up. Further, producers state that a lack of qualified prospects has diminished
enthusiasm for investment. Thus, the prospects for U. S. supply growth are poor.
Global Insight, Inc., 2003, Page 20
Supplies from Canada are also under pressure. The National Energy Board
expects gas production from the Western Canadian Sedimentary Basin ( WCSB)
to fall about 600 million cubic feet per day ( mmcfd) over the next two years, even
with substantial increases in drilling.
While the country’s traditional natural gas supplies may not increase in 2003,
there are some positive supply developments, including the reopening of the Cove
Point LNG facility, the start- up of the Kern River pipeline expansion, and the
Okeanos offshore pipeline. Coalbed methane production in Wyoming will
increase by several hundred mmcfd, exceeding 1 bcf/ day in 2003. The Barnett
shale area is also expected to be a source of significant production increases.
These expansions will start having an impact by mid- 2003, thus pushing the
highest risk of price spikes into the first half of the year, prior to the major supply
additions.
While the outlook is not sanguine, supply and demand have some room to adjust,
such that any crisis should be short- lived. During past price surges, inter- fuel
substitution, greater use of natural gas liquids, and closure of gas- intensive
industry accounted for several bcf/ day of net change. With LNG imports at 0.5
bcf/ day in 2002 and LNG import capacity rising to nearly 2.7 bcf/ day in 2003, a
large increase in LNG imports is also possible. Further, there are several bcf/ day
of available pipeline capacity from Canada that could be filled by increased
drilling in Alberta, British Columbia, and Saskatchewan. Thus, supply and
demand will respond to price signals, and price spikes are likely to be transitory
rather than permanent in the short- term.
Longer term, U. S. natural gas prices will reflect the cost of new supply sources as
demand increases steadily. Increased imports are the principal option for
increased gas supply in 2003– 2010, while Alaskan gas will not become available
until after 2010 because of the lead time required to reach consensus on
development and to build a pipeline. Expanded development of coalbed methane
and offshore Gulf of Mexico are also being pursued. With western Canadian
supply facing similar issues as the United States, net increases in supply will most
likely be from LNG or ultimately the Arctic.
The outlook for LNG trade growth is positive for 2004 and beyond as world
supplies of LNG increase rapidly. LNG will grow in importance and help to set
the long- run price of gas in the United States. New LNG projects can be
developed at $ 2.85- 4.00 per million Btu delivered to pipelines in the U. S. The
lower end of the price band reflects additions to the Atlantic LNG project in
Trinidad and use of existing terminals, while the higher estimates reflect the costs
for developing LNG at new sites more remote from the United States. Pre-existing
receiving and regasification facilities would handle initial growth in U. S.
LNG imports, which lowers the price required to make LNG economic.
Global Insight, Inc., 2003, Page 21
Alaskan gas could be shipped to major U. S. markets via pipeline beginning in
2010. The principal destination of the gas would be Chicago, entailing a pipeline
from the North Slope to Alberta and then expansion of existing Alberta to
Chicago capacity. Estimated project costs for transporting natural gas from
Alaska to Alberta range from $ 8 billion to $ 17 billion. The most recent estimates,
released by the Mackenzie Delta Producers Group, were $ 15 billion for the
northern route to $ 17 billion for the southern route. Thus, Alaskan gas will not be
developed until Henry Hub prices exceed $ 3.00/ mmBtu ( 2001 dollars) for an
extended period.
North Carolina’s Natural Gas Prices
North Carolina’s delivered cost of gas is comprised of the commodity cost of gas
plus the cost of transmission and distribution. While the commodity cost of gas is
market- based, transmission and distribution costs remain largely subject to
regulatory oversight. Over the long term, unbundling of the merchant function
from transmission and distribution costs are creating competitive forces to reduce
costs. In addition, the rapid growth in natural gas use for electric generation is
raising the utilization rate of transmission and distribution facilities. Thus, the
non- commodity components of retail prices are likely to decrease in real terms.
U. S. Average Wellhead Price of Natural Gas and North Carolina’s
Delivered Price of Natural Gas by Sector ( 2001 Dollars per Million Btu)
0
2
4
6
8
10
12
14
1992 1995 1998 2001 2004 2007 2010
Wellhead Price Residential Commercial
Industrial Electric Utilities
Global Insight, Inc., 2003, Page 22
The residential price of natural gas in North Carolina is expected to increase
gradually. In 2002, the price of natural gas in the residential sector was
$ 9.36/ mmBtu and the commercial natural gas prices was $ 7.15/ mmBtu. In 2003,
delivered prices will remain high as the commodity cost of gas ( the price of gas at
the wellhead) will be expensive. Through 2020, both residential and commercial
natural gas price will fall 0.5% annually in real terms.
In the industrial sector, the price of natural gas in 2002 reached $ 4.70/ mmBtu.
Prices will stay high in 2003, but should weaken in 2004. After 2005, gas prices
will rise at an annual rate of 0.3% in real terms.
In the electric power sector, the price of natural gas reached $ 4.66/ mmBtu in
2002, and are projected to average $ 5.22/ mmBtu in 2003. In 2020, the price is
projected to rise slowly reaching $ 7.62/ mmBtu in real 2001 dollars.
Coal
Following several years of turmoil, coal markets at the end of 2002 are reaching a
critical juncture. There are strong competing forces at play, some of which are
pressuring coal prices to be higher, while others tend to suppress those same
prices. Not surprisingly, many buyers and producers have opposing views as to
where prices are heading, leading to a decided difference in perspective that
becomes evident as these two groups try to reach agreement at the contracting
table. Global Insight’s perspective is that while coal prices must be higher than
what was experienced in the very low period of 1999- 2000, they must nonetheless
be highly competitive given the strong environmental and inter- fuel pressures that
will emerge in the next few years.
A brief review of the turmoil experienced recently in coal markets begins with the
very soft, declining market conditions that pervaded 1999 and most of 2000. The
first six months of 2000 were particularly weak, as the warm winter of 1999- 2000
left power companies with high stockpiles and very little interest in spot market
purchases. This lack of purchasing activity, coupled with a generally dismal
outlook for coal in the long run, led many suppliers to exit the market or sell their
holdings to other companies, leading to a highly consolidated coal producing
industry.
The winter of 2000- 2001 was both early and severe, catching a large portion of
the power industry short on coal inventory. When power companies attempted to
bring in large volumes of coal in order to meet strong electricity demand, as well
as shore up their dwindling stockpiles, the coal industry responded with higher
prices instead of their customary return to higher production. Part of this response
was due to the inability of some of the coal industry to actually produce sufficient
quantities of coal given the massive closure of mining capacity ( e. g., in much of
the East). At the same time, part of the response was a deliberate effort by the
more consolidated industry to demonstrate its market power by keeping idled
capacity shut, thereby pressuring prices up.
Global Insight, Inc., 2003, Page 23
Prices spiked in most coal mining regions in early 2001 at nearly twice the
previous year’s mine- mouth price. Between then and now, however, prices have
fallen ( although not to the very low levels in 2000). The major reasons behind the
market price decline have been moderate weather, a lackluster economy resulting
in reduced coal- fired generation, the strong return of hydropower from its very
low generation in 2001, the emergence of natural gas as a major competitor for
electricity generation, and the determination of power company coal buyers to
replenish their inventories as a protective measure against potential shortages in
the future.
Coal prices in the near future ( three years out) are likely to be characterized by the
following trends:
Higher Prices. While not reaching anywhere near as high as the prices seen
during the 2001 market surge, prices will be at a level well above those
experienced in the previous decade and before. This situation is due largely to the
greater concentration in the coal industry, which leaves suppliers less likely to
commence higher production in the absence of long- term market commitments.
At the same time, the higher prices reflect a growing awareness on the part of
buyers that the prices of the pre- 2001 period were simply too low to sustain a
healthy, competitive coal industry.
A More Volatile Spot Market. The spot market for coal has historically
maintained a lower price than found in the contract market, stemming from the
fact that coal was generally widely available, with too much production chasing
too little demand. As coal industry consolidation has occurred, excess mining
capacity has been greatly reduced. As a consequence, unexpected surges in coal
demand— whether from increased economic activity or possibly lower electricity
generation from competing sources ( such as hydro or natural gas)— could result in
substantial price spikes as the coal industry responds more deliberately. To a
great extent, price volatility will be more evident on the “ high price” side, as coal
companies seek to create a floor to price declines by simply shutting in capacity.
Greater Reliance on the Contract Market. Contracting for coal may well come
full circle. Throughout much of the 1980s and 1990s, most power companies
were saddled with high- priced, long- term coal contracts while prices in the short-term
market continued to fall. As these contracts expired, many buyers shifted
more of their purchases to the short- term market. This turned out to be a very
effective strategy all the way up until late 2000, when prices spiked and power
companies were saddled with extremely high prices. As a result of this greater
volatility in the spot market described above and the greater concern over coal
availability given the industry’s consolidation, many power companies are making
efforts to negotiate longer- term supply arrangements. At the same time, these
companies are inserting periodic price reopeners into these contracts to ensure
some consistency with general market trends.
Global Insight, Inc., 2003, Page 24
Three major trends are likely to drive the coal market in the long term:
Increased Inter- Fuel Competition and Environmental Requirements Will
Lead Coal Producers to Price Attractively. Over time, coal will experience
considerable competition from an influx of highly efficient natural gas generation.
Moreover, the pressure will build for power companies burning coal to install
costly pollution control equipment to deal with such problems as SO2, NOx,
regional haze, PM2.5, and mercury, among others. SO2 is the main cause of fine
particles, haze, and acid rain, while NOx is the main cause of ozone and
contributes to acid rain and haze. This fuel competition and additional generating
cost will leave relatively little room for coal to increase prices substantially and
still remain competitive.
Productivity Gains Will Allow Coal Companies to Keep Prices Low While
Simultaneously Improving Their Profit Situation. The modestly higher prices
we expect to see in the short term will serve as a base for coal companies to
reinvest in productivity- enhancing equipment after several years of neglect. This
investment will, in turn, lower production costs, allowing coal companies to price
their product competitively without sacrificing profit margin. Some coal regions
with favorable geological conditions ( e. g., the Powder River Basin) will succeed
in achieving major productivity gains, while a select few other areas experiencing
more difficult mining conditions ( e. g., Central Appalachia) will struggle simply to
hold onto the productivity levels they have currently achieved.
Higher- Sulfur Coals Will Substantially Increase Their Output Due to
Environmental Pressures and Lower Delivered Coal Prices to Power
Companies. Current regulations favor the use of low- sulfur coals as a least cost
compliance strategy, but toward the end of this decade, an increasingly large
number of coal- fired units will be forced to scrub ( i. e., install flue gas
desulfurization equipment). After having made such an investment in this
pollution control equipment, the incentive for coal buyers will change from
seeking a low- sulfur coal to seeking the most inexpensive coal, regardless of
sulfur content ( since the scrubber will remove almost all the SO2 before it can exit
the stack). As a result, high- sulfur coalfields such as the Illinois Basin and
Northern Appalachia will flourish as many power plants in proximity to these
regions switch. At the same time, we do not anticipate that low- to- mid sulfur coal
markets will suffer greatly, as scrubber technologies emerge that reduce the
scrubber costs for these coals ( relative to high- sulfur coals) and make them
competitive in many instances with the higher- sulfur coal alternative.
Competition, from natural gas and within the coal industry itself, coupled with
productivity gains as coal mining becomes more automated will drive real coal
prices lower over the long term. Most above- market, long- term coal contracts
have already expired, leading to sizeable price declines to date.
Global Insight, Inc., 2003, Page 25
Coal Prices in North Carolina
North Carolina’s power generators buy most of the coal they burn from the
Central Appalachia region. In 2002, the average mine- mouth price of coal in this
region was $ 23.08 per ton ($ 1.09 per mmBtu). Long term, the average mine-mouth
price of coal in Central Appalachia will reach $ 20.64 per ton in real 2001
dollars. The delivered price of coal to North Carolina’s power generators closely
tracks the mine- mouth price reflecting the short distance between the producing
region and the state.
Central Appalachia Minemouth Price of Coal and North Carolina’s
Delivered Price of Coal by Sector ( 2001 Dollars per Million Btu)
0.0
0.5
1.0
1.5
2.0
2.5
1992 1995 1998 2001 2004 2007 2010
Mine- Mouth Price Industrial Electric Pow er
Electricity Price
The U. S. power market continues to be dominated by the same issues that it faced
in early 2002. The unraveling of retail competition in California has essentially
halted the implementation of retail competition in other states. While many of the
problems that plagued California can be attributed to the design of California's
competition legislation, unusual weather conditions, and supply constraints, many
states have chosen not to open their retail markets to competition. States are
concerned that competitive markets will generate volatile retail prices and will
lead to supply shortages.
With retail markets in many regions of the country remaining traditionally
regulated markets, near- term prices in these regions reflect an embedded cost
structure. In regions where retail competition has been implemented, retail prices
reflect different pricing methodologies for transmission and distribution ( T& D)
services and generation services. In these regions, it is expected that in a balanced
market, increased competition will put downward pressure on costs and produce
market- based retail prices that resemble embedded costs, plus a rate of return.
Global Insight, Inc., 2003, Page 26
The amount of the rate of return will vary between hours, days, seasons, and
regions, but in the end, generators must earn a positive rate of return in order to
compete in the market. T& D prices have historically been based on cost of
service. They will remain regulated and will continue to be based on cost of
service, with performance- based rate- making ( PBR) incentives.
Average Retail Electricity Prices
( 2001 Cents per Kwh)
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
1992 1995 1998 2001 2004 2007 2010
NC South Atlantic U. S.
North Carolina’s Electricity Price Outlook
Real electricity prices are forecast to fall over time, driven by a variety of changes:
competitive pressures, additional capacity in supply- short regions, declining coal
prices, and efficiency improvements for new generation technologies. All
customer classes will benefit from lower real electricity prices, with price declines
averaging roughly similar rates across the residential, commercial, and industrial
sectors.
Global Insight, Inc., 2003, Page 27
North Carolina’s Retail Electricity Prices by Sector and
the State Average Cost of Fuel Input to Power Generation
( 2001 Cents per Kwh)
0
2
4
6
8
10
12
1992 1995 1998 2001 2004 2007 2010
Average Cost of Fuel Residential Commercial Industrial
In North Carolina, real residential prices will fall from 8.0 cents/ kWh in 2002 to
6.1 cents/ kWh ( 2001 dollars) in 2020. Real commercial rates will decline at 1.5%
per year over the forecast period ( 2002- 2020). The commercial electricity price in
2020 is expected to reach 4.9 cents/ kWh ( 2001 dollars), down from 6.4 cents per
kWh in 2002. Real industrial rates will decline at 1.5% per year to 3.5 cents/ kWh
( 2001 dollars) by 2020, from 4.6 cents/ kWh in 2002.
Global Insight, Inc., 2003, Page 28
Global Insight, Inc., 2003, Page 29
CHAPTER 4: ENERGY CONSUMPTION IN NORTH CAROLINA
Energy consumption in North Carolina will be driven by growth in all sectors.
The sector expected to grow the fastest is the transportation sector ( 2.3% annual
growth over the period 2002 to 2020) closely followed by the residential and
commercial sectors ( each of which are projected to grow at an annual rate of
around 2.0%). The industrial sector is projected to grow at a 1.5% annual rate.
Residential
Over the longer term, population and income growth will drive energy demand in
the residential sector. The resident population in North Carolina will grow 1.3%
annually over the period 2002- 2020. Real personal income and disposable
income will also increase faster than real wages, due to real increases in non- wage
incomes. As the population becomes wealthier, more energy consuming
appliances will be used. Although there will be a trend toward more efficient
appliances penetrating the average household in North Carolina, the additional
demand will be larger than offsetting efficiency improvements. Therefore, as
population expands and each person uses more energy each year, total residential
energy demand will rise by 2.0% annually between 2002- 2020. Residential
energy use per person will rise slowly from 36.1 tBtu/ capita in 2002 to 40.5
tBtu/ capita in 2020.
Total residential energy demand grew 3.4% annually between 1990 and 2000.
Over the more recent past, between 1995 and 2000, declining real energy prices
combined with growing housing stocks caused demand to grow 2.1% per year.
The strength of demand growth in the sector is led by demand for electricity,
natural gas, and propane. By 2010, total residential energy consumption is
expected to exceed 358 TBtu. Electricity and natural gas will capture most of the
demand increases over the forecast period.
As residential fuel consumption rises, efficiency in the sector will improve
slowing overall growth. The consumption per household of direct fuels, which
consist of LPG, distillate, wood, and natural gas, will remain constant over the
forecast period as a result of increased demand counterbalanced by increasing
energy efficiencies. Electricity use per household will increase, as further use of
electrical appliances in the home will boost electricity demand faster than the
offsetting effects of more efficient appliances.
Petroleum products as a group will increase 1.6% per year over the forecast
period. Petroleum's market share will decline from 19% in 2002 to less than 18%
in 2020. Consumption of distillate fuel will increase at a 0.8% annual rate
between 2002 and 2020, while demand for kerosene will increase at a 1.3%
annual rate. Demand for propane is expected to increase 2.2% per year over the
forecast period, and it will become the dominant petroleum product in the
Global Insight, Inc., 2003, Page 30
residential sector. Propane surpassed demand for distillate in 2000, and will
continue to supplant it over the forecast period. By 2010, propane demand will
have increased 6.0 TBtu over its 2002 level. Sales of propane are unregulated in
North Carolina and the growth potential of the market is significant because it is
more versatile than home heating oil.
Technological advances in natural gas heating systems will provide a boost to
gas demand over the forecast period. The share of natural gas in residential
demand will increase from 21.3% in 2002 to 21.8% in 2010. In order to gain that
share of residential demand, 13.9 TBtu more of natural gas will be consumed in
2010 than in 2002, resulting in an annual increase in demand of 2.2%.
Electricity is the dominant residential fuel, with 54.5% of the market in 2002. Its
share is expected to increase over the forecast period to over 55% due to increased
penetration of electric appliances and fuel switching away from oil products.
Increased use of cooling systems will also foster an increase in electricity
consumption over the forecast period. Final residential demand is expected to
reach 236 TBtus by 2020, causing an annual rate of increase in residential
electricity demand of 2.0% ( 2002- 2020).
Wood use in the residential sector should increase in absolute terms over the
forecast period at an average annual rate of 1.6% per year. This increase,
however, will be slower than the increase in energy demand for the sector as a
whole. Thus, the share of wood will decline slightly from 4.8% in 2000 to 4.7%
in 2010. While wood is a plentiful source of fuel in North Carolina and there are
initiatives to expand its use, it will remain a marginal source of energy for home
heating due to its lack of convenience compared to natural gas and electricity. As
urban areas expand, wood use as a primary fuel is expected to decrease.
However, it will be increasingly used as a secondary fuel in fireplaces and wood
stoves. Its use is expected to increase 33% over the forecast period, to
approximately 16.9 TBtu by 2010.
North Carolina is a major center in the country for solar research and information
dissemination. Its position as such will enable it to expand the use of active and
photovoltaic ( PV) solar technologies faster than in the country as a whole. The
use of solar, however, will be limited by its unfavorable economics compared to
traditional fuels. Typically, homeowners are reluctant to embrace technologies
with long payback periods, and advances in photovoltaic are unlikely to materially
change the economics of solar energy over the forecast period. Thus, we expect
solar to increase gradually, but it will only retain its current marginal share of the
market at 0.2%.
Commercial
Commercial sector energy consumption in North Carolina will grow faster than
the national average over the forecast period as North Carolina continues to be a
magnet for job growth. This growth is reflected in the expected increases in non-manufacturing
employment, outpacing the actual decline in job growth in the
Global Insight, Inc., 2003, Page 31
manufacturing sector. In 2002, non- manufacturing employment represented 79%
of total employment, and is projected to rise to 83% by 2010.
In the non- manufacturing sector, services, trade, and state and local governments
make up the bulk of employment in North Carolina. Both services and
governmental employment will grow faster than the non- manufacturing sector
overall, emphasizing the changing nature of the commercial sector in North
Carolina. Together these two sectors will grow from 41% of all employment in
2002, to 44% in 2010.
The unemployment rate in the state is projected to return to levels experienced
during the 1990s. This level will tend to put upward pressure on wages
throughout the forecast period, forcing companies to look for alternative cost-cutting
measures. In the commercial sector, this will mean reducing the energy
use per employee, or per square foot of commercial space. Increased business
activity will largely offset any conservation gains made, however. Total
commercial sector energy demand is thus expected to rise by 1.9% annually
between 2002 and 2020. This represents an increase of 39% over 2002 levels.
In terms of efficiency in energy use, commercial energy consumption per person
is forecasted to grow at an annual rate of 0.5% between 2002 and 2020 while
commercial energy consumption per employee is projected to grow at a similar
rate over the same time period.
As in the residential sector, use of petroleum products will decline over the
forecast period. While the decline in oil use will be gradual, the share of oil in the
fuel mix will drop from 10.6% in 2002 to 8.2% in 2020. Of the different oil
products, distillate fuel represents the majority of current oil demand in the
commercial sector, 64% in 2002. Its share of the market is expected to slightly
decrease. By 2020, distillate’s share of petroleum product demand will increase
to below 60%. Many of the same market and environmental forces that are
present in the residential sector are also at work in the commercial sector. These
will cause LPG demand to increase sharply over the forecast period. Its status as
a premium fuel compared to other oil products will allow it to increase its
penetration as an oil product, but competition from natural gas and especially
electricity will prevent it from increasing its share of total sectoral demand.
The current natural gas demand level of 41 TBtu represents 20% of the total
demand for commercial fuels in 2002. Demand for natural gas should increase
considerably over the forecast period as infrastructure constraints are reduced. Its
level of use in the sector will increase along with other demands, leaving natural
gas with the same level of market share in 2010, representing an annual demand
increase of 0.2%.
The share of electricity in the commercial fuel mix has increased steadily over
time, from 61% in 1990 to 67% in 2002. The ease of use, coupled with lower
prices, will contribute to the increasing use of electricity as further penetration of
computers and other electrical appliances into the market. By 2010, electricity
Global Insight, Inc., 2003, Page 32
will capture over 68% of the entire commercial market. Over the forecast period,
electricity demand in the commercial sector will rise 2.1% annually between 2002
and 2020.
Industry Excluding Agriculture
Between 1990 and 2000, industrial output grew an average 4% annually. Over
the forecast period 2002- 2020, this rate will slow to 2.3% as more of the North
Carolina economy moves into the non- manufacturing service field. In addition,
increased automation and worker productivity will help support further output
increases with a shrinking manufacturing workforce. Between 1990 and 2000,
manufacturing employment grew an average rate of only 0.3% per year; over the
period 2002- 2020 manufacturing employment is projected to decline at a rate of
0.5% per year. The mix of manufacturing that goes on inside the state will change
as well, moving more toward higher value added industries as cheaper energy is
available in other states close to the production centers for energy intensive
industries.
Based on these trends, total industrial sector energy demand is expected to trail
that of the residential and commercial sectors. Between 1990 and 2000, industrial
energy demand grew at an annual rate of 2.1%. Over the forecast period 2002-
2020, this should grow 1.3% per year. Higher energy prices in North Carolina, as
compared with energy producing states, will encourage conservation and the
employment of more energy efficient processes. Thus, the annual increases in
energy demand will be much lower than the increases in industrial output.
In terms of efficiency in energy use, industrial energy consumption per person
will hold flat between 2002 and 2020 while industrial energy consumption per
unit of output will decline at 2.6% annual rate over the same time period.
Unlike the residential and commercial sectors, petroleum products are expected
to continue to experience some growth in the industrial sector over the forecast
period. As a whole, the demand for oil products should rise 0.3% annually
between 2002 and 2020, while residual fuel use will fall 0.2% per year and
distillate will decline 0.3% per year. Demand for propane should remain
relatively flat, increasing only 0.5% per year over the 2002- 2020 period. It will
experience strong competition from natural gas, especially as investments are
being made in natural gas supply infrastructure as exemplified by the recent
substantial bond issuance directed towards providing additional natural gas
supplies to those regions of the state without current access.
Natural gas demand in the industrial sector will experience strong demand as
industrial operations move from fuels such as coal to cleaner fuels like natural
gas. Since many industrial customers use interruptible contracts and do not rely
on distribution systems, they pay considerably less for their gas than residential or
commercial customers do. These factors will allow demand for natural gas to
experience strong growth over the forecast period. Natural gas demand is
expected to expand 1.7% annually between 2002 and 2020, capturing an
Global Insight, Inc., 2003, Page 33
increasing share of the fuel mix. Indeed, its share should grow from 23% in 2002
and 25% by 2020.
Automated equipment and controlled heat applications will drive industrial
electricity demand over the forecast period. Over the past 10 years, electricity
demand grew 0.9% per year. As more industry introduces electrically powered
machine drives, electricity demand will increase at an annual rate of 2.2% over
the 2002- 2020 period. Current ( 2002) electricity demand levels of 106.1 TBtu's
represent 26% of the industrial fuel market. By 2010, industrial electricity
demand is expected to be 28% of the fuel mix.
Industrial wood use is significant at 77 TBtu in 2002. State incentives and pilot
programs designated to integrate wood as an industrial fuel were very successful
and were largely responsible for its large share of demand. Indeed, wood is a
cheap and plentiful resource in North Carolina and its use as an industrial fuel
provided a secure energy source. Furthermore, the state's furniture manufacturing
provides a large source of scrap wood and wood dust that can be converted to
energy. Increased penetration of wood, however, is limited because of its burning
efficiency, air quality concerns, and the inconvenience of employing it compared
to gas, electricity or coal. Demand for the fuel will grow over the forecast period,
but much more slowly than energy consumption in the sector as a whole.
Demand will grow at 1% per year between 2002 and 2020.
Agriculture
The agricultural sector is an important energy consumer in the state of North
Carolina. The sector’s energy consumption is driven by the demands created by
farm equipment and irrigation systems.
Electricity will be the strongest area of growth at 3.1% per year over the period
2002- 2020, as power is needed for industrial equipment and irrigation systems.
The demand for natural gas will be fairly strong through its use as a fuel for
heating and cooling. It is projected to grow at a 1.6% annual rate. Petroleum use
will be largely driven by the need to operate farm equipment.
Transportation
Petroleum currently dominates transportation sector fuel use and will continue to
do so over the forecast period. Although there were several pieces of energy-related
legislation passed a dozen years ago that were designed to alter the types
of fuels used in transportation ( the Clean Air Act Amendments of 1990 and the
Energy Policy Act ( EPAct) of 1992), the impact on the market has been
negligible. That said, national and state efforts continue, and over the forecast
alternatively fueled vehicles are expected to be fueled using compressed natural
gas ( CNG), propane, biodiesel, and ethanol.
In terms of efficiency in energy use, transportation energy consumption per
person will grow at an annual rate of 1.0% between 2002 and 2020.
Global Insight, Inc., 2003, Page 34
Transportation energy consumption per person can be further analyzed in terms of
on- road transportation energy consumption per person and off- road transportation
energy consumption per person. On- road energy transportation consumption per
person is expected to grow at an annual rate of 0.9% while off- road energy
transportation consumption per person is projected to grow at an annual rate of
2.3%.
Total demand for transportation fuels has grown at an average annual rate of
2.8% since 1990 in North Carolina. Growth since 1995 has been slightly higher,
averaging 3.3% annually making the transportation sector the largest end- use
demand sector in the state. Population and the economic growth of the state will
be the main drivers for energy in the transport sector during the forecast. Vehicle
miles traveled ( VMT) are set to grow 2.2% per year, leaving 2010 levels nearly
20% higher than in 2002.
Oil products accounted for 99% of the energy consumed in this sector in 2002
and will maintain near this level of market dominance throughout the forecast.
Among the various oil products, motor gasoline demand is the largest, although
distillate fuel ( diesel) is also growing rapidly. Jet fuel demand will increase at an
annual 4.3% rate between 2002 and 2020 as regional hub- airports like Charlotte
and Raleigh- Durham continue to expand.
The overwhelming majority of natural gas used in the transportation sector is
used to power the pipeline delivery system. As natural gas usage in the state
increases, especially with regard to the electric power industry, natural gas used
for transporting this fuel will also increase. As owners of vehicle fleets expand
their use of natural gas vehicles, this segment will also rise, but only at a moderate
rate. In total, natural gas use in the transportation sector amounted to 7.2 TBtus in
2000. This total will increase more slowly in the early years of the forecast, but
will rise rapidly with the continued adoption and increased use of natural gas fired
electricity generation facilities in the state later in the forecast.
Power Generation
North Carolina's prosperous economic outlook and strong population growth will
drive electricity demand steadily upwards. Electricity demand grew an average
2.9% per year between 1990 and 2000. However, since 1995, total electricity
demand has slowed to a 2.7% annual growth rate. Over the forecast period, while
demand will be strong, it will not grow at its historic pace. Between 2002 and
2020, electricity demand growth is projected to increase 2.1% annually. As a
result of this growth, fuel demand growth for the power generation sector is
expected to be robust.
North Carolina’s capacity mix is heavily skewed towards base load generation.
Over the forecast, both Carolina Power and Light and Duke Power have
announced plans to add capacity to meet peak demand. Peak demand has grown
significantly over the recent past. During the next seven years, over 3 gigawatts
Global Insight, Inc., 2003, Page 35
of oil and natural gas fired capacity additions are planned. This will
predominately be combined cycle and combustion turbine installations. Over the
longer term, Global Insight’s predicts that 1,800 megawatts ( MW) of coal- fired
capacity will be built to meet expanding baseload requirements.
North Carolina’s hydro production depends on streamflow. Thus, hydro
utilization fluctuates over history. Over the forecast period, hydro utilization is
assumed to be constant at its historic average. Nuclear power capacity within the
state was treated in the same manner. Nuclear utilization factors are much higher
in North Carolina than nationally, reflecting the above- average performance of the
state’s nuclear reactors. For the future of nuclear power in the state, the
Brunswick 2 reactor will reach the end of its operating license in 2014, and the
Brunswick 1 in 2016. The Harris and McGuire facilities will not reach the end of
their current operating licenses until after 2020.
Coal demand will rise over the forecast as base load and intermediate load
requirements increase. Utilization rates of coal- fired facilities will increase over
time as the utilities continue to work towards more efficient operations. Higher
utilization rates will increase the coal input until the end of the forecast period
when additional coal capacity is forecast to come on line. This will also increase
coal demand by the electric power industry.
Natural gas and distillate are expected to grow as peaking capacity is added. In
addition, as these new facilities are transitioned to cover intermediate load, the
utilization of the oil and gas facilities will increase. As a result, demand for both
fuels will increase sharply after 2005 when peak demand drives the need for
additional capacity additions.
Use of other fuels, including renewable sources, is also expected to expand.
Increasingly, the use of renewable fuels will be determined by economic factors.
Improvements in heat rates could have an enormous impact on variable
production costs for these plants. If technological advances or economic
incentives are not forthcoming, however, these fuels will remain a marginal
source for power generators.
Emissions
Emissions of toxic gases and substances pose a serious threat to air quality in
North Carolina. In 2002, Governor Mike Easley signed into law the Clean
Smokestacks Bill. Under the legislation, North Carolina’s 14 coal- fired plants
must reduce their emissions of key pollutants responsible for the ozone, which are
unhealthy to breathe and damage trees and crops; fine particles, which are
unhealthy to breathe and cause haze that obscures scenic views and harm tourism;
and acid rain, which is harmful to aquatic life, forests, and soils. In particular, the
legislation will require power plants to reduce:
Global Insight, Inc., 2003, Page 36
• Nitrogen oxide ( NOx) from 245,000 tons in 1998 to 56,000 tons by 2009
( 78%). NOx is the main cause of ozone and contributes to acid rain and
haze.
• Sulfur dioxide ( SO2) emissions from 489,000 tons in 1998 to 250,000
tons by 2009 ( 49%) and 130,000 tons by 2013 ( 74%). SO2 is the main
cause of fine particles, haze, and acid rain.
In addition, the legislation requires the North Carolina Division of Air Quality to
conduct a study of mercury and carbon dioxide emissions in the state. As an
added benefit, the equipment needed to reduce SO2 emissions is expected to cut
mercury emissions by about 50%. Airborne mercury eventually winds up in
streams and lakes where it can accumulate in certain kinds of fish, making them
unsafe to eat.
Utility companies will be required to cut their emissions year- round at power
plants within North Carolina. The legislation differs from federal rules, which
only apply during the ozone season ( April through October), and allows utilities
to buy or trade pollution credits from other states instead of cutting air pollution
from plants in North Carolina.
The legislation will yield important health benefits for citizens of North Carolina
and other states by significantly reducing pollution events that can trigger asthma
and other respiratory problems. The cuts in both SO2 and NOx emissions are
expected to reduce acid rain and serve as a significant step toward meeting the
new federal fine particle and ozone standards in North Carolina. The cuts will
also help to improve visibility in the mountains and other scenic areas.
Another pollutant of increasing concern is CO2, a greenhouse gas. Carbon
dioxide emissions from the combustion of coal, oil, and natural gas have been
growing steadily in North Carolina and across the nation. Carbon dioxide
emissions in 2000 were 44.6 million tonnes, and are projected to grow to 67.9
million tonnes by 2020.
Global Insight, Inc., 2003, Page 37
CHAPTER 5: COMPARISON OF NORTH CAROLINA ENERGY
PRICE, CONSUMPTION, EXPENDITURES
The state of North Carolina has an energy profile that is distinct from the other
South Atlantic states and the United States as a whole.
Residential Sector
Total residential energy consumption per capita in North Carolina will grow at a
slower rate than for the United States and the slower than the South Atlantic
region as a whole. Residential energy prices in North Carolina will increase at
about the same rate as the rest of the country.
Residential Energy Sector
North Carolina South Atlantic* United States*
Consumption (% growth 2002- 2020)
Electricity 2.0 2.4 2.1
Natural Gas 2.2 2.9 1.4
Distillate Fuel 0.8 - 0.6 - 0.1
Propane 2.2 1.2 0.8
Total 2.0 2.3 1.5
Total per Capita 0.6 1.1 0.7
Retail Prices, Nominal (% growth 2002- 2020)
Electricity 0.9 1.3 1.1
Natural Gas 1.9 1.9 2.1
Distillate Fuel 3.1 3.1 3.1
Propane 3.1 -- --
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Commercial Sector
Commercial electricity in North Carolina will grow at a slower rate than for the
South Atlantic states, while natural gas is projected to grow somewhat more
slowly. Commercial sector energy prices in North Carolina will increase slightly
slower than for the South Atlantic states and the United States.
Global Insight, Inc., 2003, Page 38
Commercial Energy Sector
North Carolina South Atlantic* United States*
Consumption (% growth 2002- 2020)
Electricity 2.1 2.3 1.9
Natural Gas 1.8 1.8 1.1
Distillate Fuel - 0.1 - 0.1 - 0.5
Residual Fuel - 0.3 - 2.2 - 1.1
Total 1.9 2.1 1.4
Total per Capita 0.5 0.9 0.6
Retail Prices, Nominal (% growth 2002- 2020)
Electricity 0.9 1.4 1.0
Natural Gas 2.0 2.0 2.2
Residual Fuel 2.8 2.8 2.7
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Industrial Sector
Industrial natural gas consumption in North Carolina will grow at a faster rate
than for the South Atlantic states or the rest of the nation. It will grow at a slower
rate for electricity. Industrial sector energy prices in North Carolina will increase
at a slower rate than the other South Atlantic states or the nation as a whole.
Industrial Energy Sector
Sector North Carolina South Atlantic United States
Consumption (% growth 2002- 2020)
Electricity 2.3 2.3 2.2
Natural Gas 1.7 1.5 1.4
Petroleum 0.5 0.3 0.4
Total 1.4 1.3 1.2
Total per $ GSP - 2.6 - 2.6 - 2.1
Retail Prices, Nominal (% growth 2002- 2020)
Electricity 0.9 1.5 1.0
Natural Gas 2.6 2.6 2.7
Coal 2.0 2.1 1.6
Distillate Fuel 3.3 3.3 3.3
Residual Fuel 2.8 2.8 2.8
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Global Insight, Inc., 2003, Page 39
Transportation Sector
The consumption of energy in the transportation sector can be divided into two
categories: on- road and off- road. From 2002 to 2020, on- road energy
consumption is forecasted to grow at a 2.4% annual rate in the state of North
Carolina. In the United States as a whole, on- highway gasoline demand is
projected to grow at a 1.7% annual rate between 2002 and 2020. In North
Caroline, off- road demand is expected to grow at a 3.1% annual rate, while it will
grow 2.6% nationally.
Transportation Sector
North Carolina* United States*
Consumption (% growth 2002- 2020)
VMT 2.2 1.9
On- road: Gasoline 1.7 1.6
On- road: Diesel 4.0 1.5
Total On- road 2.2 1.6
Total Off- road 3.1 2.6
Total Sector 2.3 1.8
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Electric Power Sector
Fuel consumption by power generators will grow faster in North Carolina than in
the South Atlantic region and the U. S. Fuel prices in North Carolina will track
prices in other regions.
Fuel Consumption and Prices to Power Generators
North Carolina South Atlantic* United States*
Consumption (% growth 2002- 2020)
Natural Gas 9.8 5.5 2.9
Petroleum 2.0 - 0.4 0.8
Coal 2.8 1.6 1.2
Nuclear 0.3 - 0.1 - 0.7
Hydro 0.0 - 0.7 0.2
Total 2.1 1.6 1.1
Total per $ GSP - 1.9 - 2.3 - 2.1
Retail Prices, Nominal (% growth 2002- 2020)
Natural Gas 2.8 2.8 3.1
Distillate Fuel 3.2 3.2 3.2
Residual Fuel 5.8 2.6 2.6
Coal 1.9 1.9 1.5
* Source: Global Insight’s U. S. Energy Outlook, Winter 2002- 2003
Global Insight, Inc., 2003, Page 40
Global Insight, Inc., 2003, Page 41
CHAPTER 6: STATE ENERGY PLAN AND THE POTENTIAL FOR
ALTERNATIVE ENERGY RESOURCES AND CONSERVATION TO
LIMIT EXPENDITURES ON ENERGY
Energy Plan Objectives
The purpose of the State Energy Plan is to set forth recommendations for policies
and programs related to energy. Currently, the state of North Carolina imports an
extremely high percentage of its fuel sources which places a substantial strain on
the state’s economy. In addition, the state’s natural landscape is adversely
affected by acid rain and other forms of pollution that result from its current
generation sources.
In order to achieve the above- stated goal, the State Energy Plan has six major
objectives:
1. Ensure Energy Reliability for Citizens of North Carolina
2. Improve Environmental Quality and Public Health in North Carolina
3. Develop Policies that Promote Wise Land Use
4. Implement Strategies Supportive of a Sound North Carolina Economy
5. Develop an Achievable Energy Strategy for North Carolina
6. Implement a Strategy by which the State Can Lead by Example
The objectives of the State Energy Plan are described in more detail in the table
on the next page.
Global Insight’s Analysis and
Recommendations
The State Energy Plan advances numerous policy initiatives. It is a fair
assumption that there will not be sufficient funding to implement all of these
initiatives. Therefore, these initiatives need to be carefully evaluated and
prioritized. This section will present Global Insight’s assessment of the impact
these initiatives will have on North Carolina’s energy outlook and our
recommendation and rationale for their prioritization.
Global Insight, Inc., 2003, Page 42
Summary of State Energy Plan
Ensure Energy Reliability for Citizens of North Carolina
• The state’s energy supply system must be designed so as to be able to withstand natural and man- made disasters.
• Careful preparation must be made to address security threats, with particular attention directed at nuclear facilities.
• There must be a diverse electricity supply that will allow the state to alternate among multiple energy sources as the need arises.
• The energy infrastructure must be maintained, and if necessary, expanded. This means that the electricity transmission and
distribution systems and natural gas pipelines must be kept in a state that will allow the free flow of energy when needed.
Improve Environmental Quality and Public Health in North Carolina
• Significant improvements need to be made in reducing air pollution from electric generating plants and in controlling acid rain
that contaminates rivers and streams.
• It is critically necessary to decrease the use of fossil fuels as an energy source as they lead to the emissions of greenhouse gases
such as carbon dioxide and methane and ultimately global change.
• Air pollution must be reduced so as to curb the rise in respiratory disease in the state. Asthma and bronchitis are the most
prevalent childhood diseases in the state.
Develop Policies that Promote Wise Land Use
• Inefficient commuter patterns lead to unnecessary fossil fuel use in the transportation sector and a reduction in job productivity.
Better urban planning is essential to effectively address this issue.
• Downtown areas of cities and small municipalities need to be strengthened in order to attract residents and businesses. This can
be accomplished by the expansion of mass transit facilities.
• Tree and vegetative population must be preserved so as to reduce greenhouse gas emissions by absorbing carbon dioxide. This
means that urban development must be carefully monitored and controlled.
• The use of agricultural crops and waste products for fuel would greatly bolster the ailing tobacco and hog industry by increasing
the demand for their products.
Implement Strategies Supportive of a Sound North Carolina Economy
• A diverse and competitive energy industry is an essential underpinning for a vibrant North Carolina economy. Programs to
promote diversity and competition are necessary to accomplish this.
• Energy efficiency measures and development of energy resources within the state including biomass, hydropower, wind, waste-derived
fuels, solar energy, and other statewide energy resources will increase North Carolina’s energy independence and allow
energy dollars to stay within the North Carolina economy.
• Energy- related industries are an important source of employment. The state should promote the development of energy- related
industries so as to create employment opportunities for North Carolina citizens.
• Energy costs are a significant cost to many businesses. A reliable and competitively priced electricity supply is necessary to foster
the development and expansion of businesses in North Carolina.
• Lower prices can be achieved by giving North Carolina energy consumers expanded choice in their electricity purchase decision.
Retail choice must become a prominent part of the energy equation.
• One of the hallmarks of a sound economy is that low- income households participate in the economic benefits. This requires that
energy costs are not prohibitive for low- income families. Weatherization, high performance new affordable housing, and low-income
energy assistance programs must be instituted to aid low- income families.
Develop an Achievable Energy Strategy for North Carolina
• The State Energy Plan must be dynamic. It cannot be developed just once and left unchanged. It needs to be constantly
monitored, tracked, and changed frequently.
• There needs to be careful coordination between the different agencies of state government to be sure that program redundancies
are minimized and effective complementary measures are undertaken.
• Sustainable energy technologies are a key ingredient of the State Energy Plan. The most promising technologies need to be
identified and promoted.
Implement a Strategy by which the State Can Lead by Example
• State- owned buildings should exemplify energy efficiency and renewable technologies.
• Financing options should be pursued in the public sector such as performance contracting.
• The state should take a lead role in promoting high efficiency and clean alternative fuels in state- owned vehicles.
• North Carolina schools should be teaching tools for energy efficient technologies and school buildings should be facilities and
house systems that provide energy directly, such as renewable technologies and fuel cells. School curricula should emphasize the
important role that energy plays in the economy.
Source: Energy Policy Working Group Energy Plan ( http:// www. ncenergy. appstate. edu)
Global Insight, Inc., 2003, Page 43
Public Sector
In Global Insight's view, the following initiatives show the greatest promise for
energy savings in the public sector:
• Implement High Performance Building Guidelines developed for North
Carolina in all new public housing and public buildings.
• Reduce energy use in existing public buildings to save a recurring $ 7
million per year or more. By 2005, reduce energy use in existing public
buildings by 20%.
• Develop performance contracting procedures and other ways to finance
energy efficiency projects for state and local governments, university and
public school systems, and public housing. Provide technical support to
implement performance- contracting projects and provide quality
assurance.
• Require a 20% reduction in petroleum use by state government fleets by
December 2006.
• Develop a financial incentive program for highly efficient vehicles, such
as a $ 250 to $ 500 payment per new vehicle in government fleets that
improve efficiency over 20% per vehicle.
• Require that public buildings purchase a minimum percentage, such as
10%, of their electricity needs from renewable energy sources, through
participation in the NC GreenPower program. Public buildings should
also generate renewable electricity for their own use and provide
renewable electricity as a source of power for the NC GreenPower
program.
North Carolina's Public Sector energy expenditures were estimated to be more
than $ 500 million in FY 2000- 2001. Approximately 88% of this is attributable to
energy consumption in public buildings. The remainder is attributable to
transportation consumption. Electricity consumption in the public sector rose
almost 7% from FY 1997- 1999. To reduce this growth rate, the components of
public sector energy consumption must be carefully analyzed. Heating and
cooling account for a large percentage of the energy use in public buildings.
Improving public building design standards and initiating performance contracting
will be very cost- effective energy efficiency measures. The state of North
Carolina is currently using high performance building guidelines at the Triangle J
Council of Governments. The High Performance Guidelines: Triangle Region
Public Facilities Program builds upon past successes in identifying ways to
increase energy efficiency in public buildings in the Triangle region. Efforts such
as the Wake County Guidelines for Design and Construction of Energy Efficient
County Facilities illustrate a history of Triangle involvement in keeping
Global Insight, Inc., 2003, Page 44
architects, engineers, and facility managers abreast of the latest standards for
achieving high performance, cost effective buildings. Also, developing financial
incentives for highly efficient vehicles and targets for alternative fueled vehicles
should be vigorously pursued.
On the supply side, the public sector can contribute to the development of
renewable energy sources. Requiring a minimum of 10% of the energy used in the
public sector be purchased from renewable sources by 2006 will be significant in
allowing the state of North Carolina to become more energy independent. Such a
statutory requirement is currently being considered in Massachusetts.
The public sector is a fairly significant contributor to commercial energy
consumption in North Carolina. Therefore, reducing public sector energy use can
make a meaningful contribution to reducing commercial energy consumption in
North Carolina. The current version of the Energy Plan assumes that energy
consumption in public buildings can be reduced by an average of 4% per year in
the foreseeable future. This is an aggressive goal and it is unlikely that it can be
achieved.
Global Insight believes that in the absence of these initiatives, commercial sector
energy consumption is expected to grow on average by 1.6% per year between
2000 and 2020. Based upon experience with aggressive building design and
performance contracting in Massachusetts, commercial energy consumption
could be reduced to the 1.1% to the 1.3% per year range if all measures were
fully funded. This was the experience in Massachusetts in the late 1990s.
Residential Sector
The Energy Policy Working Group feels that substantial energy savings are
available in North Carolina’s residential buildings. In Global Insight's view, the
following initiatives show the greatest promise for energy savings in the
residential sector:
• Assess recently completed residential buildings for energy code
compliance, as well as other energy- related characteristics. Make
recommendations for energy code changes that are cost effective in terms
of energy savings versus installed costs. Determine improvements in the
energy code inspection process that are needed to achieve improved
compliance.
• Develop standards and publicity campaigns for a statewide Energy Star
program. Provide incentives such as tax credits or direct payments for
new residential or commercial buildings.
• Develop a North Carolina Energy Star program to improve the
efficiency of affordable housing built in the state. Provide targeted
training, technical assistance, and financial assistance to achieve
Global Insight, Inc., 2003, Page 45
maximum market penetration of Energy Star buildings for affordable
housing.
• Establish minimum efficiency guidelines for manufactured housing sold
in North Carolina. Provide incentives, such as tax credits or direct
payments, for Energy Star manufactured homes.
• Develop a program to increase the efficiency of existing residential
buildings, such as energy audits tied to tax credits or direct incentive
payments.
• Strengthen the Low Income Weatherization program to optimize the
energy efficiency work being performed in the field. Assess the
practicality of establishing a goal to weatherize all low- income homes
and residential units by 2015.
In 2001, the residential sector accounted for 17% of North Carolina’s energy
consumption. Electricity accounted for 55% of the energy usage while natural gas
accounted for 20%. Residential energy end use in North Carolina in 2001 can be
described as follows:
• Lighting- 24%
• Water Heating- 24%
• Space Cooling- 22%
• Space Heating- 23%
• Appliances- 7%
As one can see, residential energy use in North Carolina is distributed
predominantly across lighting, heating, and cooling end- uses. Therefore,
initiatives that address these specific end uses will be most effective. Enforcing
more rigidly and expanding energy code compliance will be very effective in
reducing residential sector energy consumption. Also, promoting energy audits
through tax credits and direct incentive payments will have a significant impact.
The energy audit program currently in effect in Massachusetts has been very
successful in reducing residential energy consumption in Massachusetts.
A lighting rebate program needs to be an essential part of the residential sector in
the Energy plan. The rebates should be offered for both energy efficient fixtures
and bulbs. The rebates for fixtures should be more generous than those for bulbs
as once the fixtures are in place, the market will be driven to purchase more
effective bulbs. Residential lighting programs in Massachusetts have been very
instrumental in reducing lighting consumption. Penetration rate studies and
Delphi surveys should be conducted in North Carolina to evaluate the potential
effectiveness of lighting rebate programs.
Participation in the various ENERGY STAR programs is another fruitful way of
reducing residential energy consumption in North Carolina. There are three major
Global Insight, Inc., 2003, Page 46
ENERGY STAR Programs: ENERGY STAR Products, ENERGY STAR
Homes, and ENERGY STAR Buildings.
ENERGY STAR Products
The ENERGY STAR Products program makes it easy for consumers to identify
high quality, energy- efficient products for their homes and offices. Under the
program, almost 7,000 individual product models in 31 consumer product
categories are ENERGY STAR qualified. The following table shows the energy
saved and emissions prevented for various product categories.
Energy Star Products 1999 Achievements
Product Energy Saved
( billions kWh)
Emissions Prevented
( MMTCE)*
Computers 2.7 0.5
Monitors 12.5 2.5
Printers 4.2 0.9
Copiers 0.9 0.2
Other Office Products 3.6 0.6
Exit Signs 2.2 0.4
Residential Fixtures 2.0 0.4
Home Electronics 0.9 0.2
Other Products 0.2 0.1
Total 29.2 5.8
* Million Metric Tons Carbon Equivalent Per Year
Source: http:// www. energystar. gov
• As of the end of 2000, more than 630 million products with the
ENERGY STAR label were purchased.
• By choosing ENERGY STAR, consumers can save 30% on their energy
bills - about $ 400 per year - and protect the environment for future
generations.
• In 2000, Americans saved more than $ 5 billion on energy bills.
• In 2001, the ENERGY STAR label was extended to supermarkets and
grocery stores that perform in the top 25% of the market.
• In 2001, ENERGY STAR for set- top boxes and residential dehumidifiers
were introduced.
ENERGY STAR Homes
New homes that bear the ENERGY STAR label incorporate features such as
improved insulation, tightly sealed construction, sealed ducts, high- performance
Global Insight, Inc., 2003, Page 47
windows, and high- efficiency heating and cooling equipment. These homes are
generally 30% more energy efficient than the Model Energy Code. According to
the ENERGY STAR website ( http:// www. energystar. gov), the major
accomplishments of the Program in recent years include:
• In 1999, over 8,000 new homes qualified as ENERGY STAR. This was
an increase of more than 50% over 1998.
• ENERGY STAR labeled homes have averaged over 35% in energy- use
reductions.
• In 1999, the threshold of 1,000 building partners was crossed.
• In 1999, more than 800 industry allies, including approximately 40
utilities, signed agreements to promote ENERGY STAR Homes.
• In 1999, the manufactured housing sector, representing about 30% of all
new housing, began participating in the program.
• In 1999, energy savings were sufficient to power ten million homes and
reduce air pollution equivalent to taking ten million cars off the road.
• In 2000, ENERGY STAR begins to offer the Home Improvement
Toolbox to make it easy for homeowners to incorporate ENERGY STAR
into their home improvement or repair projects.
ENERGY STAR Buildings
ENERGY STAR Buildings collaborates with a wide range of building owners
and users - retailers, healthcare organizations, real estate investors, state and local
governments, schools and universities, and small businesses. Each partner
commits to improving the energy performance of its organization and uses the
performance metrics and tools provided by ENERGY STAR to achieve
significant savings in both dollars and air pollution. According to the ENERGY
STAR website, recent accomplishments include:
• More than 7,000 private and public sector organizations have partnered
with EPA to improve their energy performance representing more than
600 buildings or 17% of the total commercial, public, and industrial
building market.
• Partners have saved more than 22 billion kWh of energy, reduced energy
bills by at least $ 1.6 billion, and prevented emissions of at least 4.5
MMTCE.
Global Insight, Inc., 2003, Page 48
• Cumulative investments in energy- efficient technologies have totaled
more than $ 3.6 billion.
• Over 1.6 billion square feet of investor- owned office properties have
joined ENERGY STAR, representing over 70% of the office properties
market.
• By choosing ENERGY STAR, businesses and organizations could save
more than $ 25 billion per year on their energy bills and protect the
environment for future generations.
• Installing ENERGY STAR labeled computers, monitors, fax machines,
copiers, or printers saves approximately $ 80 per product per year, and
prevents pollution.
The low- income weatherization program is another effective way of reducing
residential sector energy consumption. In addition to reducing energy use, it also
provides financial assistance to low- income families. This program has been
highly effective in reducing energy consumption for low- income families in
Massachusetts.
Global Insight believes that in the absence of the initiatives discussed above,
energy consumption per person in the residential sector is expected to grow on
average by 0.6% per year between 2000 and 2020. Based upon experience with
similar programs in Massachusetts, energy consumption per person in the
residential sector could be reduced to the 0.2% to the 0.4% per year range if the
above recommendations are fully funded. This was the experience in
Massachusetts in the late 1990s.
Commercial Sector
The Energy Policy Working Group feels that substantial energy savings are
available in North Carolina’s commercial buildings. In Global Insight's view, the
following initiatives show the greatest promise for energy savings in the
commercial sector:
• Assess recently completed commercial buildings for energy code
compliance, as well as other energy- related characteristics. Make
recommendations for energy code changes that are cost effective in terms
of energy savings versus installed costs. Determine improvements in the
energy code inspection process that are needed to achieve improved
compliance.
• Provide incentives such as tax credits or direct payments for new or
existing commercial buildings.
• Develop a program to increase the efficiency of existing commercial
buildings, such as energy audits tied to tax credits or direct incentive
payments.
Global Insight, Inc., 2003, Page 49
• Promote and develop guidelines for successful performance contracts,
and conduct workshops and provide technical assistance on developing
performance- contracting documents.
• Develop commercial building energy analysis software to assist building
owners with evaluating the best energy efficiency measures.
The commercial sector accounted for approximately 12% of energy use in North
Carolina in 2001. The distribution of energy sources is as follows:
Electricity- 67% totaling 138 Trillion Btu
Natural Gas- 19% totaling 40 Trillion Btu
Propane- 2%, totaling 4 Trillion Btu
Other Petroleum- 10% totaling 21Trillion Btu
Coal and Renewables ( primarily wood) each provide approximately
1%, with each totaling 2 Trillion Btu.
From an electricity consumption standpoint, the most intensive end uses are
lighting at 100%, space cooling at 99%, and water heating at 73%. Therefore,
many of the initiatives proposed for the residential sector are also proposed here.
With respect to lighting, enforcement and expansion of energy code compliance
standards should be aggressively pursued. Currently, problems exist with
stringent energy code enforcement. City and county code enforcement agencies
assign health, safety, and other aspects of buildings a higher priority than energy
efficiency. Also, the energy code is more complex than most other codes. Thus,
code enforcement officials have too little, time, training, and priority to enforce
the energy code fully. Instead, they often rely on the building’s engineering
design team to ensure compliance.
Also, granting of tax credits for installation of efficient fixtures and bulbs is
necessary. The rebates should be offered for both energy efficient fixtures and
bulbs. The rebates for fixtures should be more generous than those for bulbs as
once the fixtures are in place, the market will be driven to purchase more efficient
bulbs.
The above initiatives offer substantial potential for energy savings. Commercial
lighting programs in Massachusetts have been very instrumental in reducing
lighting consumption. Penetration rate studies and Delphi surveys should be
conducted in North Carolina to evaluate the potential effectiveness of lighting
rebate programs.
Space cooling and water heating initiatives should be promoted through
performance contracting. Commercial building owners are, in general, very savvy
with regard to energy efficiency investments and will be quite responsive to
performance contracting arrangements. This has been the case in Massachusetts,
Connecticut, and New York.
Global Insight, Inc., 2003, Page 50
Many commercial buildings have energy managers. These managers are very
knowledgeable with regard to energy saving technologies and are generally quite
amenable to energy audits and the use of energy analysis software. Depending
upon their level of expertise, energy managers will either utilize the software
themselves, or obtain the services of a contractor to perform the analysis for them.
In either case, audits and the use of energy analysis software are a very effective
way of motivating building owners to undertake energy saving measures.
Global Insight believes that in the absence of the initiatives discussed above,
commercial sector energy consumption is expected to grow on average by 1.6%
per year between 2000 and 2020. Based upon experience with these programs in
Massachusetts, commercial energy consumption could be reduced to the 1.2% to
the 1.4% per year range if the above- recommended initiatives are fully funded.
This was the experience in Massachusetts in the late 1990s.
Industrial Sector
North Carolina’s industrial sector uses more energy than any sector other than
transportation sector. The development of policies that support industrial energy
use efficiency is a crucial component of retaining a strong manufacturing
economy and will directly support the goals of the State Energy Plan. In Global
Insight's view, the following initiatives show the greatest promise for energy
savings in the industrial sector:
• Develop incentives, such as tax credits or direct payments, for energy
efficiency measures in new or existing industrial facilities, such as
upgrading to higher efficiency motors; installing higher efficiency
lighting, hot water, heating, cooling, and ventilation systems; and
improving industrial processes.
• Expand the Industrial Extension Service ( IES), Industrial Assessment
Center ( IAC), and related industrial energy outreach, training, and
technical assistance activities. Increase funding to assist industries
through the procurement process for installing energy measures when
indicated by an energy audit.
• Promote and develop guidelines for successful performance contracts,
and conduct workshops and provide technical assistance on developing
performance- contracting documents.
• Assess recently completed industrial buildings for energy code
compliance, as well as other energy- related characteristics. Make
recommendations for energy code changes that are cost effective in terms
of energy savings versus installed costs. Determine improvements in the
energy code inspection process that are needed to achieve improved
compliance.
Global Insight, Inc., 2003, Page 51
• Provide incentives, such as tax credits or direct payments, for the
implementation of energy efficiency measures in new or existing
industrial facilities.
• Develop a program to increase the efficiency of existing industrial
facilities, through energy audits tied to tax credits or direct incentive
payments.
• Encourage the use of industrial building energy analysis software to
assist industrial facility owners with evaluating the best energy efficiency
measures. Depending upon their level of expertise, energy managers will
either utilize the software themselves or obtain the services of a
contractor to perform the analysis for them. In either case, audits and the
use of energy analysis software are a very effective way of motivating
building owners to undertake energy saving measures.
In 2001, the industrial sector in North Carolina was estimated to consume
approximately 427 trillion Btu’s per year, or 27% of the total energy used in the
state. The distribution of energy sources is as follows:
Electricity- 22%
Natural Gas- 22%
Petroleum- 35%
Wood and Waste- 11%
Coal- 8%
Hydroelectric- 2%
In terms of the percentage of industrial consumption by end- use in the Southern
region of the United States, the two major end- uses are Process Heat at 24% and
Boiler Fuel at 22%.
The potential for energy saving improvements in the industry sector falls into four
primary categories:
1. General Energy- Saving Technologies. These are technologies that are
applicable to all manufacturing sectors. Examples are high efficiency
lighting and computer control of air conditioning.
2. Industry specific Energy- Saving Technologies.
3. Energy Management Activities. Examples are energy audits, load
control, and a full- time energy manager.
4. Other Innovative Approaches: changing processes or increasing worker
productivity
The most promising area in the commercial and industrial sectors to promote
energy efficiency is in renewable energy. Many states have adopted industrial
programs and policies to encourage the development of renewable energy sources
Global Insight, Inc., 2003, Page 52
by providing incentives to manufacturers. Most states offer numerous financial
incentives for the development of renewable energy sources. These incentives
fall into the following categories:
• Personal Tax
• Corporate Tax
• Sales Tax
• Property tax
• Rebates
• Grants
• Loans
• Production Incentives
The states of New York, Massachusetts, Oregon, California, and Ohio offer
numerous financial incentives for the development of renewable energy resources.
A description of major programs in each of these states is presented below. 1
New York
♦ Energy $ mart New Construction Program
The New York State Energy Research and Development Authority
( NYSERDA) provides incentives of up to $ 300,000 per project for the design
and installation of building- integrated photovoltaics ( BIPV), and up to
$ 100,000 per project for the design and installation of advanced solar and
daylighting technologies. Incentives are capped at 70% of the incremental
cost of the design and installation of eligible measures for advanced solar and
daylighting technologies and the lesser of $ 5 per watt ac or 70% of the
incremental cost of BIPV. The program is scheduled to end on 12/ 31/ 03.
Upon program evaluation, a decision will be made as to whether or not to
continue the program.
♦ Green Building Tax Credit Program
In 2000, New York State passed an innovative Green Building Tax Credit
for business and personal income taxpayers. Part II of Chapter 63 of the
Laws of 2000 provides for tax credits to owners and tenants of eligible
buildings and tenant spaces that meet certain “ green standards”. These
standards increase energy efficiency, improve indoor air quality, and
reduce the environmental impacts of large commercial and industrial
buildings in New York State.
1 Database of State Incentives for Renewable Energy ( http:// www. dsireusa. org)
Global Insight, Inc., 2003, Page 53
The total credit amount allocated by the legislature is $ 25 million to be
distributed between 2001 and 2009. Owners and tenants must work
through an architect or engineer who will help obtain a credit certificate
from the state for their project. The credits are distributed over a five-year
period with any unredeemed portion able to be carried forward
indefinitely or transferred to a new owner or tenant. Initial credit
certificates will be issued between 2000 and 2004.
Projects can qualify for credits under six different program components:
1) Whole Building Credit ( owner or tenant) where base building and all
tenant spaces are green